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 MAY 31, 2003 ------------ 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 May 31, 2003 ----- --------------------------- Common stock, $.01 par value 23,504,000 shares REPRO-MED SYSTEMS, INC. TABLE OF CONTENTS PAGE ---- PART I FINANCIAL INFORMATION ITEM 1. Financial Statements Balance Sheet (Unaudited) - May 31, 2003 .......................... 3 Statements of Operations (Unaudited) - for the Three-Months Ending May 31, 2003 and May 31, 2002 .............................. 4 Statements of Cash Flow (Unaudited) - for the Three-Months Ending May 31, 2003 and 2002 ...................................... 5 Notes to Unaudited Financial Statements ........................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 6 PART II OTHER INFORMATION ITEM 1. Legal Proceedings ................................................. 8 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 SIGNATURES ................................................................. 9 CERTIFICATION .............................................................. 10 2 REPRO-MED SYSTEMS, INC. BALANCE SHEET UNAUDITED FEBRUARY ASSETS MAY 31,2003 28, 2003 ----------- ----------- CURRENT ASSETS Cash & Cash Equivalents ........................ $ 52,804 $ 16,738 Accounts Receivable, net ....................... 190,670 184,103 Inventory ...................................... 360,841 381,623 Prepaid Expenses ............................... 19,694 11,470 ----------- ----------- TOTAL CURRENT ASSETS ............................... 624,009 593,934 ----------- ----------- EQUIPMENT & OTHER ASSETS Total Equipment ................................ 1,200,840 1,199,772 Less - Accumulated Depreciation ................ (802,239) (784,017) ----------- ----------- Net Book Value of Equipment .................... 389,601 415,755 Deposits ....................................... 31,302 54,802 Other Assets ................................... 46,024 46,135 ----------- ----------- TOTAL EQUIPMENT & OTHER ASSETS ..................... 475,927 516,692 ----------- ----------- TOTAL ASSETS ....................................... $ 1,099,936 $ 1,110,626 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable ............................... $ 257,601 $ 267,634 Note Payable to Related Parties ................ 120,000 84,000 Accrued Expenses ............................... 73,406 66,543 Note Payable to Bank ........................... 199,461 199,461 Current Portion Capital Lease Obligations ...... 26,492 26,492 Current Portion Capital Gain ................... 22,481 22,481 ----------- ----------- TOTAL CURRENT LIABILITIES ...................... 699,441 666,611 ----------- ----------- OTHER LIABILITIES Long-Term Portion Capital Lease Obligations .................... 36,602 45,614 Deferred Capital Gain Income ................... 331,595 337,215 ----------- ----------- TOTAL LIABILITIES .................................. 1,067,638 1,049,440 ----------- ----------- STOCKHOLDERS' EQUITY Preferred Stock, 8% Cumulative $.01 Par Value Authorized 2,000,000 Issued & Outstanding 10,000 Shares (liquidation value $100,000) ... 100 100 Common Stock, $.01 Par Value, Authorized 50,000,000 Shares, Issued & Outstanding 23,504,000(Includes 2,275,000 in Treasury Shares) Respectively at May 31 and February 28, 2003 ............................ 235,040 235,040 Additional Paid-in Capital ..................... 2,211,631 2,211,631 Accumulated Deficit ............................ (2,272,473) (2,243,585) Treasury Stock at Cost ......................... (142,000) (142,000) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY ......................... 32,298 61,186 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ........... $ 1,099,936 $ 1,110,626 =========== =========== See Accompanying Notes to Financial Statements 3 REPRO-MED SYSTEMS, INC. STATEMENTS OF OPERATIONS UNAUDITED FOR THE 3 MONTHS ENDED MAY 31,2003 MAY 31,2002 ----------- ----------- SALES Net Sales ...................................... $ 429,501 $ 435,242 COST AND EXPENSES Cost of Goods Sold ........................... 198,645 317,264 Selling, General & Administrative Expenses ... 221,939 138,562 Research and Development ..................... 8,680 5,413 Depreciation and Amortization ................ 19,734 21,588 ---------- ---------- TOTAL COST AND EXPENSES ........................ 448,998 482,827 ---------- ---------- LOSS FROM OPERATIONS ........................... (19,497) (47,585) Non-Operating Income (Expense) Interest (Expense) ........................... (8,797) (6,992) Interest & Other Income ...................... 237 5,103 ---------- ---------- (8,560) (1,889) ---------- ---------- LOSS BEFORE INCOME TAXES ....................... (28,057) (49,474) Provision for Income Taxes ................... (831) (702) ---------- ---------- NET LOSS AFTER TAXES ........................... (28,888) (50,176) ========== ========== NET LOSS PER COMMON SHARE Basic ........................................ ($0.01) ($0.01) Diluted ...................................... ($0.01) ($0.01) Average Common Shares Outstanding .............. 23,504,000 23,504,000 See Accompanying Notes to Financial Statements 4 REPRO-MED SYSTEMS, INC. STATEMENTS OF CASH FLOWS UNAUDITED FOR THE THREE MONTHS ENDED MAY 31, 2003 MAY 31, 2002 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (Loss) ......................................... ($28,888) ($50,176) Adjustments to reconcile net (loss) to cash used in operating activities: Depreciation and Amortization ................. 19,734 21,588 Capital Gain - building lease ................. (5,620) (5,621) Decrease (Increase) in Accounts Receivable .... (6,567) 22,210 Decrease (Increase) in Inventories ............ 20,782 39,025 Increase in Prepaid Expenses .................. (8,224) (5,420) Decrease (Increase) in Accounts Payable ....... (10,033) 9,244 Increase in Accrued Expenses .................. 6,863 8,342 -------- -------- NET CASH (USED IN) PROVIDED BY OPERATIONS .......... (11,953) 39,192 CASH FLOWS FROM INVESTING ACTIVITIES Decrease in Security Deposit .................. 23,500 0 Capital Expenditures .......................... (2,468) (20,018) -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 21,032 (20,018) -------- -------- CASH FLOW PROVIDED BY FINANCING ACTIVITIES Increase in Notes Payable to Related Parties .. 36,000 0 Payments, Increased Obligations on Capitalized Leases .......................... (9,012) 10,460 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 26,988 10,460 -------- -------- NET INCREASE IN CASH ............................... 36,067 29,634 Cash and Cash Equivalents -- Beginning of Period ... 16,738 25,669 -------- -------- Cash and Cash Equivalents -- End of Period ......... $ 52,805 $ 55,303 ======== ======== Supplemental disclosures of Cash Flow Information: Interest ...................................... $ 8,797 $ 6,992 Income Taxes .................................. 831 702 See Accompanying Notes to Financial Statements 5 REPRO-MED SYSTEMS, INC. NOTES TO THE UNAUDITED 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, 2003 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 $28,888 during the three months ended May 31, 2003. 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 May 31, 2003, and the results of operations and cash flows for the three-month periods ended May 31, 2003 and 2002 have been included. The results of operations for the three-month period ended May 31, 2003, 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, 2003. In March, 2003, the Company negotiated with the landlord of its Chester, New York, facility to utilize $27,500 of its security deposit (held by the landlord) to pay March and April, 2003, rent. The agreement provides for replenishment within 90 days. At the date of this filing, the security deposit had not been repaid. DEBT As of May 31, 2003, we have an outstanding balance of $199,461 on our bank line of credit. The line agreement officially ended on June 30, 2001 but the bank renewed the line verbally through June 30, 2003 and we are requesting the bank to continue the line with a six-month extension. 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 6 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 MAY 31, 2003 AND 2002 Net sales overall decreased 1.3% from $435,242 (2002) to $429,501 (2003). The reduced sales were partially offset by a $28,347 increase in OEM sales compared to the first quarter of 2002. Sales of our core products decreased 3.1% quarter over quarter ended May 31, 2003, with our Freedom60 sales increasing by 22.1% and RES-Q-VAC sales decreasing slightly by 7.4%. With more than 60% of RES-Q-VAC sales coming from exports, this slight decrease is attributed to softening of the world economic markets and also a back order situation for our sterile product. Gross profit increased to 54% of net sales in 2003 from 27% in 2002 primarily due to certain reallocations of expenses and improvements in production efficiencies. Selling, general and administrative expense increased by $83,377 in 2003 from $138,562 in 2002 primarily as the result of these same reallocations. Research and development expenses increased $3,267 from 2002 to 2003. Depreciation and amortization expense decreased somewhat period over period as certain equipment became fully depreciated. Interest expense increased 72.4% as a result of an increase in loans by related parties to the Company and additional capitalized leases. Other income decreased by $4,866 due to refunds received during FY2003 for expenses from a prior year and which did not recur during the current fiscal year. 7 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 May 31, 2003, $199,461 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. The bank has assured the Company that if the line is not renewed, there will be no requirement for immediate repayment of the line. Quarter over quarter ending May 2003 the losses from Operations decreased 59% from $47,586 for the Quarter ending May 2002 to $19,497 for the current quarter. This decrease is due to increased sales of our higher margin products, and the implementation of cost controls. We continue to work towards positive cash flow and have several opportunities to improve sales of our key products, RES-Q-VAC and Freedom60. On March 13, 2003, we signed a contract with Joint Purchasing Corporation. JPC is a non-profit, health services organization headquartered in New York that helps healthcare providers strengthen their bottom line by assisting in the implementation of cost control and resource management strategies. JPC has approximately 3,500 members and is assisting us in promoting our cost saving products to their members. In April, we signed agreements with an outside salesman to provide field representation for our products and with a medical consultant who is introducing us to national distributors and buying groups. As a result of these activities, an agreement with a national distributor, Sammons Preston Rolyan has been signed for Freedom60, RES-Q-VAC and our Gyneco products. Also, during this quarter an agreement was signed with one of our vendors to license, sell and promote the Freedom60 as well as securing potential investment in the Company. We are anticipating agreements with several additional national distributors and Group Purchasing Organizations. 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 are exploring the potential of this market in domestic market. Gama Sanitos is also jointly developing a variable rate flow controller with us which will enhance the operation of the Freedom60 as well as have uses on other pressurized pump systems, as well as providing support for Freedom60 in the chemotherapy market. We continue to pursue capital investment through debt or equity to increase our marketing and sales, 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 other material litigation threatened against the Company. 8 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 May 31, 2003. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 b) Reports on Form 8-K Form 8-K/A, Item 4, Changes in Registrant's Certifying Accountant, incorporated by reference dated February 28, 2003, as amended July 14, 2003. Form 8-K, Item 9, Regulation FD Disclosure, incorporated by reference dated May 12, 2003. 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. Date: July 18, 2003 /s/ Andrew I. Sealfon --------------------- Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, Chief Executive Officer and Chief Financial Officer 9 CERTIFICATION I, Andrew Sealfon, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Repro-Med Systems, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstance under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows, of the registrant as of, and for the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities particularly during the period this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which would adversely effect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material; that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 18, 2003 /s/Andrew I. Sealfon - -------------------- Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, Chief Executive Officer and Chief Financial Officer 10