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, 2004 ------------ 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, 2004 ----- --------------------------- Common stock, $.01 par value 24,931,000 shares REPRO-MED SYSTEMS, INC. TABLE OF CONTENTS PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements Balance Sheet (Unaudited) - May 31, 2004 ........................... 3 Statements of Operations (Unaudited) - for the Three-Months Ending May 31, 2004 and May 31, 2003 ............................... 4 Statements of Cash Flow (Unaudited) - for the Three-Months Ending May 31, 2004 and 2003 ....................................... 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 .................................................. 9 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 2 REPRO-MED SYSTEMS, INC. BALANCE SHEET UNAUDITED MAY 31, FEBRUARY 29, 2004 2004 ----------- ----------- ASSETS CURRENT ASSETS Cash & Cash Equivalents ...................... $ 221,716 $ 219,682 Accounts Receivable, net ..................... 208,310 130,334 Inventory .................................... 350,234 378,982 Prepaid Expenses ............................. 31,052 25,775 ----------- ----------- TOTAL CURRENT ASSETS ............................. 811,312 754,773 ----------- ----------- EQUIPMENT & OTHER ASSETS Total Equipment .............................. 1,226,741 1,216,152 Less - Accumulated Depreciation .............. (877,306) (858,417) ----------- ----------- Net Book Value of Equipment .................. 349,435 357,735 Deposits ..................................... 27,652 27,652 Other Assets ................................. 46,372 48,027 ----------- ----------- TOTAL EQUIPMENT & OTHER ASSETS ................... 423,459 433,414 ----------- ----------- TOTAL ASSETS ..................................... $ 1,234,771 $ 1,188,187 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable ............................. $ 269,431 $ 325,723 Note Payable to Related Parties .............. 7,000 7,000 Accrued Expenses ............................. 92,571 99,205 Note Payable to Bank ......................... 198,581 198,581 Current Portion Capital Lease Obligations .... 17,228 19,079 ----------- ----------- TOTAL CURRENT LIABILITIES .................... 584,811 649,588 ----------- ----------- OTHER LIABILITIES Long-Term Portion Capital Lease Obligations .. 20,785 24,846 Deferred Capital Gain Income ................. 331,596 337,215 Long-Term Debt - Notes Payable ............... 450,000 350,000 ----------- ----------- TOTAL LIABILITIES ................................ 1,387,192 1,361,649 ----------- ----------- STOCKHOLDERS' EQUITY Preferred Stock, 8% Cumulative $.01 Par Value Authorized 2,000,000 Shares, Issued & Outstanding 10,000 Shares (liquidation value $100,000) .................................. 100 100 Common Stock, $.01 Par Value, Authorized 50,000,000 Shares, 24,931,000 shares and 24,531,000 shares issued and outstanding at May 31, 2004 and February 29, 2004, respectively ............................... 249,310 245,310 Additional Paid-in Capital ................... 2,268,711 2,252,711 Accumulated Deficit .......................... (2,528,542) (2,529,583) Treasury Stock at Cost ....................... (142,000) (142,000) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY ....................... (152,421) (173,462) ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ......... $ 1,234,771 $ 1,188,187 =========== =========== See Accompanying Notes to Financial Statements 3 REPRO-MED SYSTEMS, INC. STATEMENTS OF OPERATIONS UNAUDITED FOR THE 3 MONTHS ENDED MAY 31, 2004 MAY 31, 2003 ------------ ------------ SALES Net Sales ...................................... $ 507,475 $ 429,501 COST AND EXPENSES Cost of Goods Sold ........................... 219,800 198,645 Selling, General & Administrative Expenses ... 224,207 221,939 Research and Development ..................... 10,443 8,680 Stock-Based Compensation ..................... 20,000 - Depreciation and Amortization ................ 20,544 19,734 ------------ ------------ TOTAL COST AND EXPENSES ........................ 494,994 448,998 ------------ ------------ PROFIT (LOSS) FROM OPERATIONS .................. 12,481 (19,497) Non-Operating Income (Expense) Interest (Expense) ........................... (11,842) (8,797) Interest & Other Income ...................... 402 237 ------------ ------------ (11,440) (8,560) ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES .............. 1,041 (28,057) Provision for Income Taxes ................... - (831) ------------ ------------ INCOME (LOSS) AFTER TAXES ...................... $ 1,041 $ (28,888) ============ ============ INCOME (LOSS) PER COMMON SHARE Basic ........................................ $ 0.01 $ (0.01) Diluted ...................................... $ 0.01 $ (0.01) Average Common Shares Outstanding ............ 24,767,888 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, MAY 31, 2004 2003 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) ................................. $ 1,041 $(28,888) Adjustments to reconcile net (loss) to cash used in operating activities: Stock-Based Compensation ...................... 20,000 - Depreciation and Amortization ................. 20,544 19,734 Capital Gain - building lease ................. (5,619) (5,620) Increase in Accounts Receivable ............... (77,976) (6,567) Decrease in Inventories ....................... 28,748 20,782 Increase in Prepaid Expenses .................. (5,277) (8,224) Decrease in Accounts Payable .................. (56,292) (10,033) Decrease (Increase) in Accrued Expenses ....... (6,634) 6,863 --------- -------- NET CASH USED IN OPERATIONS ....................... (81,465) (11,953) CASH FLOWS FROM INVESTING ACTIVITIES Decrease in Security Deposit .................. - 23,500 Capital Expenditures .......................... (10,589) (2,468) --------- -------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (10,589) 21,032 --------- -------- CASH FLOW PROVIDED BY FINANCING ACTIVITIES Notes Payable - President and Others ............ 100,000 - Increase in Notes Payable to Related Parties .... - 36,000 Payments, Increased Obligations on Capitalized Leases ........................................ (5,912) (9,012) --------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES ...... 94,088 26,988 --------- -------- NET INCREASE IN CASH .............................. 2,034 36,067 Cash and Cash Equivalents -- Beginning of Period .. 219,682 16,738 --------- -------- Cash and Cash Equivalents -- End of Period ........ $ 221,716 $ 52,805 ========= ======== Supplemental disclosures of Cash Flow Information: Interest ...................................... $ 11,842 $ 8,797 Income Taxes .................................. - 831 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 29, 2004 included in the Form 10-KSB for the year then ended. 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, 2004, and the results of operations and cash flows for the three-month periods ended May 31, 2004 and 2003 have been included. The results of operations for the three-month period ended May 31, 2004, 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 29, 2004. STOCK HOLDERS' EQUITY/NOTES PAYABLE During the quarter ended May 31, 2004, the company executed note agreements for $100,000. In connection with the execution of those agreements, the Company is obligated to issue four shares of its common stock each year for each dollar of principal borrowed. As of May 31, 2004, the Company is obligated to issue 400,000 shares it common stock under the agreements. These shares have not been issued as of May 31, 2004, but have been reflected as issued for financial statement purposes. 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 6 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, 2004 AND 2003 Sales for the first quarter increased 18.2% to $507,475 compared to $429,501 in 2003. Sales in our core product lines increased 26.8% quarter over quarter ended May 31, 2004, with FREEDOM60 sales increasing by 37.7% and RES-Q-VAC sales increasing by 24.3%. Sales of non-core products and OEM manufacturing revenues decreased $21,832 (34.3%). Approximately two-thirds of the increased revenues came from international markets. Gross profit increased to 56.7% of net sales in 2004 from 53.8% in 2003 due, in part, to efficiencies realized at the higher sales volume. Selling, general and administrative expense increased 1% ($2,268) to $224,207 in 2004 from $221,939 in 2003. Research and development expenses increased $1,763 from 2003 to 2004. Depreciation and amortization expense increased slightly ($810) period over period as the result of equipment purchases during the past year. Interest expense increased 34.6% as a result of an increase in loans obtained through the company's promissory note program. As a result of the higher sales volume and continued efforts to improve efficiencies, the Profit from Operations improved by $31,978 from a loss of $19,497 in the quarter ended May 31, 2003 to a positive profit of $12,481, including $20,000 in non-cash expenses related to issuance of stock in 2004 under our promissory note and stock offering program. Net profit improved from a loss of $28,888 in 2003 to a positive profit of $1,041 in 2004, with the 2004 results again including non-cash expenditures of $20,000 in stock-based compensation. 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, 2004, $198,581 has been advanced on the line of credit. In accordance with the agreement, the line of credit was to be renewed or paid off by June 30, 2001. We have received a verbal continuance from the bank through June 30, 2003. We have not received a demand for repayment of the loan and continue to make interest payments. 7 Commencing in mid-February, 2004, we started raising capital from a promissory note and stock offering which raised $225,000 by the end of the fiscal year ended February 29, 2004. This five year promissory note pays 2% over prime plus four share of common stock per year for every year the loan is in place. We received an additional $100,000 under the same program in the first quarter of fiscal year 2005. Another $25,000 was raised in the first quarter of 2003 under similar terms. We continue to work towards improving cash flow and have several opportunities to improve sales of our key products, RES-Q-VAC and FREEDOM60. We have expanded our sales efforts in several areas. Effective March, 2004, we engaged the services of a retired United States Air Force Colonel to guide our RES-Q-VAC military sales efforts. In May, we hired an experienced Vice President of Sales, based in Florida, to handle sales in the southeastern United States and manage key accounts elsewhere in the country. In June, we engaged a marketing consultant with extensive infusion sales experience to assist in developing additional markets for the FREEDOM60. In May, 2004, we signed a distribution agreement with Omni Biomed LLC, based in Knoxville, Tennessee. Omni Biomed provides distribution and training services to hospitals, physicians, clinics and others in the home and long-term care markets. The agreement covers both the FREEDOM60 and RES-Q-VAC for the southeastern United States including Tennessee, Kentucky, Alabama, Arkansas, North Carolina, South Carolina, Mississippi, Louisiana, West Virginia, Virginia, Georgia, and Florida. 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 continue to explore the potential of this application in the domestic market. Gama Sanitos is also jointly developing several new products with us which will enhance the marketability of the FREEDOM60. Currently we are looking at developing an elastomeric pump which can be used for antibiotics, pain, and KVO (Keep Vein Open) therapy. We believe that for certain applications requiring more fluid volume than 60ml, and for KVO therapy combined with the FREEDOM60, an elastomeric pump will make our infusion products line more diverse and improve sales. 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. 8 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. 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, 2004. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Form 8-K, Item 9, Regulation FD Disclosure, incorporated by reference dated May 12, 2004. 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 July 20, 2004 --------------------- Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, and Chief Executive Officer 9