UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB AMENDMENT NO. 1 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES ACT OF 1934 For the quarterly period ended NOVEMBER 30, 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 November 30, 2003 ----- -------------------------------- Common stock, $.01 par value 23,554,000 shares REPRO-MED SYSTEMS, INC. TABLE OF CONTENTS PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Balance Sheet (Unaudited) - November 30, 2003 and February 28, 2003 (Audited) ..........................................3 Statements of Operations (Unaudited) - for the three-months and nine months ending November 30, 2003 and November 30, 2002 ................4 Statements of Cash Flow (Unaudited) - for the nine months ending November 30, 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 - OTHER INFORMATION ITEM 1. Legal Proceedings ...................................................10 ITEM 2. Changes in Securities ...............................................10 ITEM 3. Defaults Upon Senior Securities .....................................10 ITEM 4. Submission of Matters to a Vote of Security Holders .................10 ITEM 5. Other Information ...................................................10 ITEM 6. Exhibits and Reports on Form 8-K ....................................10 2 REPRO-MED SYSTEMS, INC. BALANCE SHEET UNAUDITED NOVEMBER 30, FEBRUARY 28, 2003 2003 ASSETS (UNAUDITED) (AUDITED) CURRENT ASSETS ----------- ----------- Cash & Cash Equivalents .................... $ 16,907 $ 16,738 Accounts Receivable, net ................... 151,170 184,103 Inventory .................................. 369,424 381,623 Prepaid Expenses & Other Receivables ....... 26,700 11,470 ----------- ----------- TOTAL CURRENT ASSETS ........................... 564,201 593,934 ----------- ----------- EQUIPMENT & OTHER ASSETS Total Equipment ............................ 1,209,352 1,199,772 Less - Accumulated Depreciation ............ (839,696) (784,017) ----------- ----------- Net Book Value of Equipment ................ 369,656 415,755 Deposits ................................... 31,302 54,802 Other Assets ............................... 50,415 46,135 ----------- ----------- TOTAL EQUIPMENT & OTHER ASSETS ................. 451,373 516,692 ----------- ----------- TOTAL ASSETS ................................... $ 1,015,574 $ 1,110,626 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable ........................... $ 327,798 $ 267,634 Notes Payable to Related Parties ........... 125,000 84,000 Accrued Expenses ........................... 47,500 66,543 Accrued Salaries and Wages ................. 41,853 -- Bank Line of Credit ........................ 199,461 199,461 Current Portion of Leases Payable .......... 25,565 26,492 Current Portion Capital Gain ............... 22,481 22,481 ----------- ----------- TOTAL CURRENT LIABILITIES .................. 789,658 666,611 ----------- ----------- OTHER LIABILITIES Long-Term Portion of Leases Payable ....... 22,656 45,614 Deferred Capital Gain Income .............. 320,355 337,215 ----------- ----------- TOTAL LIABILITIES .............................. 1,132,669 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 23,554,000 at November 30, 2003 and 23,504,000 at February, 28, 2003 (Includes 2,275,000 of Treasury Shares) Respectively 235,540 235,040 Additional Paid-in Capital ................. 2,213,131 2,211,631 Accumulated Deficit ........................ (2,423,866) (2,243,585) Treasury Stock at Cost ..................... (142,000) (142,000) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY ..................... (117,095) 61,186 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ....... $ 1,015,574 $ 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 9 MONTHS ENDED NOV 30, 2003 NOV 30, 2002 NOV 30, 2003 NOV 30, 2002 ------------ ------------ ------------ ------------ SALES Net Sales of Products .......... $ 380,163 $ 381,547 $ 1,189,358 $ 1,268,628 COST AND EXPENSES Cost of Goods Sold ........... 178,870 260,148 558,942 883,753 Selling, General & Administrative Expenses 237,012 128,324 689,454 406,175 Research and Development ..... 10,563 5,482 31,000 16,273 Depreciation and Amortization 20,490 20,160 60,301 59,757 ------------ ------------ ------------ ------------ TOTAL COST AND EXPENSES ........ 446,935 414,114 1,339,697 1,365,958 ------------ ------------ ------------ ------------ (LOSS) FROM OPERATIONS ......... (66,772) (32,567) (150,339) (97,330) Non-Operating Income (Expense) Interest (Expense) ........... (9,133) (5,158) (25,511) (17,821) Interest & Other Income ...... 5 8,310 400 12,403 ------------ ------------ ------------ ------------ (9,128) 3,152 (25,111) (5,418) ------------ ------------ ------------ ------------ (LOSS) BEFORE INCOME TAXES ..... (75,900) (29,415) (175,450) (102,748) Provision for Income Taxes . 0 0 (831) (0) ------------ ------------ ------------ ------------ NET (LOSS) AFTER TAXES ......... (75,900) (29,415) (176,281) (102,748) ============ ============ ============ ============ (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 .................... 23,554,000 23,504,000 23,529,000 23,504,000 See Accompanying Notes to Unaudited Financial Statements 4
REPRO-MED SYSTEMS, INC. STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED UNAUDITED NOVEMBER 30, NOVEMBER 30, 2003 2002 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net (Loss) ........................................ ($176,281) ($102,748) Adjustments to reconcile net (loss) to cash (used) in operating activities: Stock-Based Interest Payments ................... 2,000 -- Depreciation and Amortization ................... 60,301 59,757 Capital Gain - Building Lease ................... (16,860) (16,861) Decrease (Increase) in Accounts Receivable ...... 32,933 13,896 Decrease (Increase) in Inventory ................ 12,199 70,397 (Decrease) Increase in Accrued Salaries and Wages .................................... 41,853 -- Increase in Prepaid Expenses .................... (15,230) (27,260) (Decrease) Increase in Accounts Payable ......... 60,164 74,649 (Decrease) Increase in Accrued Expenses ......... (19,044) (60,727) --------- --------- NET CASH PROVIDED BY (USED IN) OPERATIONS ......... (17,965) 11,103 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Decrease in Security Deposit .................... 23,500 -- Capital Expenditures ............................ (18,481) (23,470) --------- --------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ... 5,019 (23,470) --------- --------- 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 ........................... (23,885) -- --------- --------- CASH FLOW PROVIDED BY FINANCING ACTIVITIES ........ 13,115 11,000 --------- --------- NET INCREASE IN CASH .............................. 169 (1,367) Cash and Cash Equivalents, beginning of period .... 16,738 25,670 --------- --------- Cash and Cash Equivalents, end of period .......... $ 16,907 $ 24,303 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest ........................................ 25,511 17,821 Income Taxes .................................... 831 0 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 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 $176,281 during the nine months ended November 30, 2003 and has a negative equity position of $117,095 at November 30, 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 November 30, 2003, and the results of operations and cash flows for the nine month periods ended November 30, 2003 and 2002 have been included. The results of operations for the nine-month period ended November 30, 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 November 30, 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 September 30, 2003, $25,000 was outstanding under the loan agreements. Accordingly, the Company is obligated to issue 50,000 shares having a market value of $2,000 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 NOVEMBER 30, 2003 VS. 2002 Overall, net sales for the quarter remained nearly level from 2002 to 2003, with net sales of $380,163 in 2003 compared to net sales of $381,547 in 2002. Sales of products in the Freedom60 line increased 29.2% quarter over quarter ended November, 2003. This increase was offset by softness in world economic markets and pressure on domestic municipal budgets, which continued to affect purchases of Res-Q-Vac, with sales decreasing 8.1% quarter over quarter. A 9.8% increase in the non-core Gyneco product line was matched by decreases in other non-core product line and OEM sales. The net loss for the quarter increased to $75,900 in 2003 from a net loss of $29,415 in 2002. Gross profit increased to 52.9% of net sales in 2003 from 31.8% 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 $108,688 in 2003 from $128,324 in 2002 primarily as the result of these same reallocations and an increase in sales and marketing expenditures. Research and development expenses increased $5,081 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. 7 Interest expense increased as a result of an increase in loans by related parties to the Company and additional capitalized leases. NINE MONTHS ENDED NOVEMBER 30, 2003 VS. 2002 Sales of products in the Freedom60 line increased 21.9% for the nine-months ended November 30, 2003 vs. the nine-months ended November 30, 2002. Net sales decreased 6.2% overall to $1,189,358 (2003) from $1,268,628 (2002) for the nine-month period, reflecting lower sales of the Company's other core product, Res-Q-Vac, which decreased 16.2% in the same nine-month period. The decrease in Res-Q-Vac and non-core product sales was partially offset by a $58,000 increase in OEM sales during the nine-month period. The net loss increased to $176,281 for the nine-months ended November 30, 2003 from a net loss of $102,748 for the same period in 2002 due, in part, to the reduction in revenue compared to the same period a year earlier and the addition of a salesperson to the marketing program in calendar 2003. 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 $283,279 in 2003 from $406,175 in 2002 primarily as the result of these same reallocations and an increase in sales and marketing expenditures. Research and development expenses increased $14,727 from 2002 to 2003, again as a result of cost reallocations. Interest expense increased as a result of an increase in loans by related parties to the Company and additional capitalized leases. Other income decreased by $4,093 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 accepted negative cash flow for this period to enable us to engage a sales consultant and support new sales initiatives. Sales from these activities have begun. We anticipate additional increasing sales resulting from these efforts. Another factor in the negative cash flow was due to lower-than-anticipated international sales. We financed our cash requirements in this period through a combination of a reduction in inventories and accounts receivables, a net increase in payables, a draw against our building deposit (held by the landlord), loans from related parties and a partial deferral of salaries by certain members of senior management. 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. 8 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 provider in the United States who has 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. In addition, due to the functionality of the Res-Q-vac and needs of the military, we continue to pursue sales of Res-Q-Vac for military applications such as exposure to weapons of mass destruction (WMD) e.g., sarin gas which requires repeated and aggressive suctioning in order to save lives. Its light weight, portability and rugged construction are also advantages for military operations. Beginning on February 2, 2004 we engaged the services of a marketing group well positioned in military affairs and VA hospitals to facilitate our entry into these markets. We have trained a new specialty sales group in Freedom60. 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. 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. In the third quarter, we signed marketing agreements with two additional independent sales representatives. We also completed arrangements with one of the nation's largest EMS distributors for a special nationwide sales program to promote our Res-Q-Vac products with Full Stop Protection beginning in early 2004. 9 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 November 30, 2003. 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 None 10 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 February 4, 2004 _____________________ Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, and Chief Executive Officer 11