UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES ACT OF 1934 For the quarterly period ended AUGUST 31, 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 Aug. 31, 2003 ----- ---------------------------- 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, 2003 and February 28, 2003 (Audited) ..........................................3 Statements of Operations (Unaudited) - for the three-months and six months ending August 31, 2003 and August 31, 2002 ................4 Statements of Cash Flow (Unaudited) - for the six months ending August 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 ........................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 August 31, February 28, 2003 2003 ASSETS (Unaudited) (Audited) CURRENT ASSETS ----------- ----------- Cash & Cash Equivalents ...................... $ 38,623 16,738 Accounts Receivable, net ..................... 198,166 184,103 Inventory .................................... 389,584 381,623 Prepaid Expenses & Other Receivables ......... 16,673 11,470 ----------- ----------- TOTAL CURRENT ASSETS ............................. 643,046 593,934 ----------- ----------- EQUIPMENT & OTHER ASSETS Total Equipment .............................. 1,204,682 1,199,772 Less - Accumulated Depreciation .............. (820,775) (784,017) ----------- ----------- Net Book Value of Equipment .................. 383,907 415,755 Deposits ..................................... 31,302 54,802 Other Assets ................................. 48,392 46,135 ----------- ----------- TOTAL EQUIPMENT & OTHER ASSETS ................... 463,601 516,692 ----------- ----------- TOTAL ASSETS ..................................... $ 1,106,647 $ 1,110,626 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable ............................. $ 317,510 267,634 Notes Payable to Related Parties ............. 125,000 84,000 Accrued Expenses ............................. 68,982 66,543 Accrued Salaries and Wages ................... 33,962 -- Bank Line of Credit Payable .................. 199,461 199,461 Current Portion of Leases Payable ............ 27,357 26,492 Current Portion Capital Gain ................. 22,481 22,481 ----------- ----------- Total Current Liabilities .................... 794,753 666,611 ----------- ----------- OTHER LIABILITIES Long-Term Portion of Leases Payable .......... 29,114 45,614 Deferred Capital Gain Income ................. 325,975 337,215 ----------- ----------- TOTAL LIABILITIES ................................ 1,149,842 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 of Treasury Shares) Respectively ........... 235,040 235,040 Additional Paid-in Capital ................... 2,211,631 2,211,631 Accumulated Deficit .......................... (2,347,966) (2,243,585) Treasury Stock at Cost ....................... (142,000) (142,000) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY ....................... (43,195) 61,186 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ......... $ 1,106,647 $ 1,110,626 =========== =========== 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, 2003 AUG 31, 2002 AUG 31, 2003 AUG 31, 2002 ------------ ------------ ------------ ------------ SALES Net Sales of Products ......... $ 379,694 $ 451,840 $ 809,195 $ 887,082 COST AND EXPENSES Cost of Goods Sold .......... 181,427 303,953 380,072 621,218 Selling, General & Administrative Expenses .. 230,503 134,509 452,442 273,071 Research and Development .... 11,757 5,378 20,437 10,791 Depreciation and Amortization 20,077 19,913 39,811 41,501 ------------ ------------ ------------ ------------ TOTAL COST AND EXPENSES ....... 443,764 463,753 892,762 946,581 ------------ ------------ ------------ ------------ (LOSS) FROM OPERATIONS ........ (64,070) (11,913) (83,567) (59,499) Non-Operating Income (Expense) Interest (Expense) .......... (7,581) (6,329) (16,378) (13,321) Interest & Other Income ..... 158 358 395 5,461 ------------ ------------ ------------ ------------ (7,423) (5,971) (15,983) (7,860) ------------ ------------ ------------ ------------ (LOSS) BEFORE INCOME TAXES .... (71,493) (17,884) (99,550) (67,359) Provision for Income Taxes .. 0 0 (831) (702) ------------ ------------ ------------ ------------ NET (LOSS) AFTER TAXES ........ (71,493) (17,884) (100,381) (68,061) ============ ============ ============ ============ (LOSS) PER COMMON SHARE Primary ..................... ($0.01) ($0.01) ($0.01) ($0.01) Fully Diluted ............... ($0.01) ($0.01) ($0.01) ($0.01) Average Common Shares Outstanding ................. 23,504,000 23,504,000 23,504,000 23,504,000 See Accompanying Notes to Financial Statements 4
REPRO-MED SYSTEMS, INC. STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED UNAUDITED AUGUST 31, AUGUST 31, 2003 2002 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net (Loss) ........................................... ($100,381) ($68,061) Adjustments to reconcile net (loss) to cash (used) in operating activities: Depreciation and Amortization ...................... 39,811 41,501 Capital Gain - Building Lease ...................... (11,240) (11,240) Decrease (Increase) in Accounts Receivable ......... (14,063) 59,505 Decrease (Increase) in Inventory ................... (7,961) 57,019 (Decrease) Increase in Accrued Salaries and Wages ....................................... 33,962 Increase in Prepaid Expenses ....................... (5,203) (18,491) (Decrease) Increase in Accounts Payable ............ 49,876 35,599 (Decrease) Increase in Accrued Expenses ............ 2,439 (26,295) --------- --------- NET CASH PROVIDED BY (USED IN) OPERATIONS ............ (12,760) 69,537 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Decrease in Security Deposit ....................... 23,500 - Capital Expenditures ............................... (10,220) (21,968) --------- --------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ...... 13,280 (21,968) --------- --------- CASH FLOW PROVIDED BY FINANCING ACTIVITIES Increase in Notes Payable to Related Parties ....... 41,000 15,000 Preferred Stock Dividend ........................... (4,000) (4,000) Payments, Increased Obligations on Capitalized Leases .............................. (15,635) 4,546 --------- --------- CASH FLOW PROVIDED BY FINANCING ACTIVITIES ........... 21,365 15,546 --------- --------- NET INCREASE IN CASH ................................. 21,885 63,115 Cash and Cash Equivalents, beginning of period ....... 16,738 25,670 Cash and Cash Equivalents, end of period ............. $ 38,623 $ 88,785 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest ........................................... 16,378 13,321 --------- --------- Income Taxes ....................................... 831 702 ========= ========= See Accompanying Notes to 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 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 $100,381 during the six months ended August 31, 2003 and has a negative equity position of $43,195 at August 31, 2003. The Company seeks 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, 2003, and the results of operations and cash flows for the six month periods ended August 31, 2003 and 2002 have been included. The results of operations for the six-month period ended August 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. SHORT-TERM FINANCING As of August 31, 2003, the Company had an outstanding balance of $199,461 on its bank line of credit. The line agreement officially ended on June 30, 2001 but was verbally renewed by the bank through June 30, 2003. The loan is currently due. LOAN PROGRAM WITH OFFICERS, DIRECTORS AND OTHERS In April, 2003, the Company offered its officers, directors, employees and others the opportunity to lend the company funds at the rate of 2% over the prime rate charged by the Company's principal bank on the last day of each quarter which is payable quarterly. Additionally, the Company will grant one share of common stock per quarter for each dollar of principal indebtedness on the unpaid principal balance. At June 30, 2003, $25,000 was outstanding under the loan agreements. Accordingly, the Company is obligated to issue 25,000 shares having a market value of $1,250 and record stock-based compensation. The shares due at the date of this report had not been issued, but the stock-based compensation has been recorded. 6 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, 2003 VS. 2002 Sales of products in the Freedom60 line increased 4.7% quarter over quarter ended August 31, 2003. The softening of world economic markets and pressure on domestic municipal budgets continued to affect purchases of Res-Q-Vac, with sales decreasing 29.5% quarter over quarter. The decrease in Res-Q-Vac and non-core product sales was partially offset by a $38,200 increase in OEM sales. Overall, net sales decreased 16% overall to $379,694 (2003) from $451,840 (2002) for the quarter. Gross profit increased to 52% of net sales in 2003 from 33% in 2002 primarily due to improvements in production efficiencies and reallocation of certain expenses to more accurately reflect actual production costs. Selling, general and administrative expense increased by $95,994 in 2003 from $134,509 in 2002 primarily as the result of these same reallocations and an increase in sales and marketing expenditures. Research and development expenses increased $6,379 from 2002 to 2003, again as a result of cost reallocations. Depreciation and amortization expenses increased slightly during this period reflecting capital equipment purchases and amortization of patent and trademark costs in 2003. Interest expense increased 19.8% as a result of an increase in loans by related parties to the Company and additional capitalized leases. 7 SIX MONTHS ENDED AUGUST 31, 2002 VS. 2001 Sales of products in the Freedom60 line increased 12.8% for the six-months ended August 31, 2003 vs. the six-months ended August 31, 2002. Net sales decreased 8.8% overall to $809,195 (2003) from $887,082 (2002) for the six month period, reflecting lower sales of the Company's other core product, Res-Q-Vac, which decreased 18.4% in the same six month period. The decrease in Res-Q-Vac and non-core product sales was partially offset by a $66,600 increase in OEM sales during the six month period. Gross profit increased to 53% of net sales in 2003 from 30% in 2002 primarily due to improvements in production efficiencies and reallocation of certain expenses to more accurately reflect actual production costs. Selling, general and administrative expense increased by $179,371 in 2003 from $273,071 in 2002 primarily as the result of these same reallocations and an increase in sales and marketing expenditures. Research and development expenses increased $9,646 from 2002 to 2003, again as a result of cost reallocations. Interest expense increased 23% as a result of an increase in loans by related parties to the Company and additional capitalized leases. Other income decreased by $5,066 due in large part to refunds received during FY2003 for expenses from a prior year and which did not recur during the current fiscal year. LIQUIDITY AND CAPITAL RESOURCES During June 2000, we negotiated a $200,000 line of credit with M&T Bank that is guaranteed by the President and one of the directors. As of August 31, 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. We continue to work towards positive cash flow and have several opportunities to improve sales of our key products, RES-Q-VAC and Freedom60. In March, 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 the first 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. Sammons has introduced us to the largest nursing home provide in the United States who expressed serious interest in our products. We are anticipating agreements with several additional national and regional distributors and Group Purchasing Organizations as well as with several independent representatives. In August we signed an agreement with Pharmed, a minority owned distributor in the state of Florida, and have trained 17 of their sales staff on the Res-Q-Vac and Freedon60. Pharmed has begun to open the hospital market for the Res-Q-Vac, a new market opportunity for this product line. We also completed an agreement with Trinity Medical Solutions, which services the Veterans Affairs market. 8 We have trained a new specialty sales group in Freedom60 and plan to begin training a second group in the near future. During a recent visit with one of our new health care providers in Knoxville, TN, we were informed that the continually diminishing reimbursement situation is expected to cause the market to seek out the Freedom60 to sustain their growth and provide quality medical care at affordable cost. In August, we signed an exclusive marketing agreement with International Products, Inc. (IPI), a Connecticut corporation, for our Gyneco and Masterson product lines. The agreement provides exclusive world-wide marketing rights to IPI for the Gyneco products. We believe that the Masterson Endometrial Biopsy System can be successfully re-introduced into the market with sufficient capital to reposition the product. IPI is also responsible for marketing the Gyneco Thermal Cautery System and both Companies are negotiating with several independent sales groups to access this market. We are commencing a marketing program for the Res-Q-Vac with our new Full Stop Protection, which prevents the spread of diseases such as HIV/AIDS, SARS, hepatitis, tuberculosis, among others. Recently the Centers for Disease Control (CDC) has recommended the use of adequate protection when dealing with the SARS virus which is expected to reappear. The filtration capabilities of Full Stop Protection are also incorporated in the OSHA regulations as a requirement under their engineering controls. As far as we know, our Res-Q-Vac is the only such portable suction system to incorporate this technology which is also covered under U.S Patent #6,575,946. With Full Stop Protection, the cost of each individual use of Res-Q-Vac is actually reduced since the filter protects the pump. Competing devices, although less expensive initially, must be disposed of after use, and thus are more costly per use than Res-Q-Vac. With the limited resources available, we are promoting these benefits which we believe make the Res-Q-Vac a desirable and needed product. 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 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, 2003. 9 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 31.1 Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports of 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. 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 20, 2003 - --------------------- Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, and Chief Executive Officer 10