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 NOVEMBER 30, 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 November 30, 2004 ----- -------------------------------- Common stock, $.01 par value 24,931,000 shares REPRO-MED SYSTEMS, INC. TABLE OF CONTENTS PART I PAGE ---- ITEM 1. Financial Statements Balance Sheet (Unaudited) - November 30, 2004 and February 29, 2004 (Audited) ....................................... 3 Statements of Operations (Unaudited) - for the three-months and nine months ending November 30, 2004 and November 30, 2003 ........ 4 Statements of Cash Flow (Unaudited) - for the nine months ending November 30, 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 ITEM 1. Legal Proceedings ................................................. 11 ITEM 2. Changes in Securities ............................................. 11 ITEM 3. Defaults Upon Senior Securities ................................... 11 ITEM 4. Submission of Matters to a Vote of Security Holders ............... 11 ITEM 5. Other Information ................................................. 11 ITEM 6. Exhibits and Reports on Form 8-K .................................. 11 2 REPRO-MED SYSTEMS, INC. BALANCE SHEET NOVEMBER 30, FEBRUARY 29, 2004 2004 ASSETS (UNAUDITED) (AUDITED) CURRENT ASSETS ----------- ----------- Cash & Cash Equivalents ...................... $ 69,657 $ 219,682 Accounts Receivable, net ..................... 113,499 130,334 Inventory .................................... 382,734 378,982 Prepaid Expenses ............................. 43,712 25,775 ----------- ----------- TOTAL CURRENT ASSETS ............................. 609,602 754,773 ----------- ----------- EQUIPMENT & OTHER ASSETS Total Equipment .............................. 1,247,325 1,216,152 Less - Accumulated Depreciation .............. (914,786) (858,417) ----------- ----------- Net Book Value of Equipment .................. 332,539 357,735 Deposits ..................................... 27,652 27,652 Other Assets ................................. 43,063 48,027 ----------- ----------- TOTAL EQUIPMENT & OTHER ASSETS ................... 403,254 433,414 ----------- ----------- TOTAL ASSETS ..................................... $ 1,012,856 $ 1,188,187 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable ............................. $ 292,534 $ 325,723 Notes Payable to Related Parties ............. 7,000 7,000 Accrued Expenses ............................. 95,963 99,205 Note Payable to Bank ......................... 198,581 198,581 Current Portion Capital Lease Obligations .... 15,381 19,079 ----------- ----------- TOTAL CURRENT LIABILITIES .................... 609,459 649,588 OTHER LIABILITIES Long-Term Portion Capital Lease Obligations .. 13,306 24,846 Deferred Capital Gain Income ................. 320,356 337,215 Long-Term Debt - Notes Payable ............... 450,000 350,000 ----------- ----------- TOTAL LIABILITIES ................................ 1,393,121 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 November 30, 2004 and February 29, 2004, Respectively ............................... 249,310 245,310 Additional Paid-in Capital ................... 2,258,711 2,252,711 Accumulated Deficit .......................... (2,746,386) (2,529,583) Treasury Stock at Cost ....................... (142,000) (142,000) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY ....................... (380,265) (173,462) ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ......... $ 1,012,856 $ 1,188,187 =========== =========== See Accompanying Notes to Financial Statements 3 REPRO-MED SYSTEMS, INC. STATEMENTS OF OPERATIONS UNAUDITED
FOR THE 3 MONTHS ENDED FOR THE 9 MONTHS ENDED NOV 30, 2004 NOV 30, 2003 NOV 30, 2004 NOV 30, 2003 ------------ ------------ ------------ ------------ SALES Net Sales of Products ............. $ 337,141 $ 380,163 $ 1,211,091 $ 1,189,358 COST AND EXPENSES Cost of Goods Sold .............. 160,409 178,870 554,068 558,942 Selling, General & Administrative Expenses ...................... 258,763 237,012 727,999 689,454 Research and Development ........ 10,943 10,563 32,615 31,000 Stock-Based Compensation ........ -- -- 20,000 -- Depreciation and Amortization ... 20,079 20,490 61,334 60,301 ------------ ------------ ------------ ------------ TOTAL COST AND EXPENSES ........... 450,194 446,935 1,396,016 1,339,697 ------------ ------------ ------------ ------------ (LOSS) FROM OPERATIONS ............ (113,053) (66,772) (184,925) (150,339) Non-Operating Income (Expense) Interest (Expense) .............. (15,047) (9,133) (41,057) (25,511) Interest & Other Income ......... 6,517 5 14,179 400 ------------ ------------ ------------ ------------ Remove this ..................... (8,530) (9,128) (26,878) (25,111) ------------ ------------ ------------ ------------ (LOSS) BEFORE INCOME TAXES ........ (121,583) (75,900) (211,803) (175,450) Provision for Income Taxes ...... 0 0 (1,000) (831) ------------ ------------ ------------ ------------ NET (LOSS) ........................ ($ 121,583) ($ 75,900) ($ 212,803) ($ 176,281) ============ ============ ============ ============ NET (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 ..................... 24,931,000 23,554,000 24,876,600 23,529,000 See Accompanying Notes to Financial Statements 4
REPRO-MED SYSTEMS, INC. STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED UNAUDITED NOVEMBER 30, NOVEMBER 30, 2004 2004 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net (Loss) ........................................ ($212,803) ($176,281) Adjustments to reconcile net (loss) to cash (used) in operating activities: Stock-Based Compensation ........................ 20,000 2,000 Legal Expenses Charged to Additional Paid-In Capital ............................... (10,000) -- Depreciation and Amortization ................... 61,333 60,301 Capital Gain - Building Lease ................... (16,859) (16,860) Decrease in Accounts Receivable ................. 16,835 32,933 Decrease (Increase) in Inventory ................ (3,752) 12,199 Increase in Prepaid Expenses .................... (17,937) (15,230) (Decrease) Increase in Accounts Payable ......... (33,189) 60,164 Decrease (Increase) in Accrued Expenses ......... (7,242) 22,809 --------- --------- NET CASH USED IN OPERATIONS ....................... (203,614) (17,965) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Decrease in Security Deposit .................... -- 23,500 Capital Expenditures ............................ (31,173) (18,481) --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (31,173) 5,019 --------- --------- NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES Notes Payable - President and Others ............ 100,000 -- Increase in Notes Payable to Related Parties .... -- 41,000 Preferred Stock Dividend ........................ -- (4,000) Payments, Increased Obligations on Capitalized Leases ........................................ (15,238) (23,885) --------- --------- CASH FLOW PROVIDED BY FINANCING ACTIVITIES ........ 84,762 13,115 --------- --------- NET (DECREASE) INCREASE IN CASH ................... (150,025) 169 Cash and Cash Equivalents, beginning of period .... 219,682 16,738 --------- --------- Cash and Cash Equivalents, end of period .......... $ 69,657 $ 16,907 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest ........................................ $ 41,057 $ 25,511 Income Taxes .................................... 1,000 831 Non-Cash Investing and Financing Activities: Preferred Stock Dividend Payable .............. $ 4,000 -- 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 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 November 30, 2004, and the results of operations and cash flows for the three and nine month periods ended November 30, 2004 and 2003 have been included. The results of operations for the nine-month period ended November 30, 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. 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. STOCKHOLDERS' 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. The Company is obligated to issue 400,000 shares of its common stock under the agreements. As of November 30, 2004, 185,000 of these shares have been issued and the remaining 215,000 shares 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 6 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, 2004 VS. 2003 International sales of products in the RES-Q-VAC product line increased 42% quarter over quarter ended November 30, 2004. However, this was offset by continued softness in the domestic market where RES-Q-VAC sales declined 37.8%, resulting in a net increase of 0.1% in RES-Q-VAC sales, quarter over quarter. Sales in the other core product line, Freedom60, declined 13.6%. Sales in the non-core product lines, including Gyneco and OEM manufacturing, also declined. Overall, net sales for the quarter decreased 11.3% to $337,141 in 2004 compared to net sales of $380,163 in 2003. The majority (75%) of the decrease between 2003 and 2004 was the result of a severe decline in sales in the month of October. Based on discussions with our largest RES-Q-VAC distributor, we believe that this condition was experienced throughout the industry. There was a substantial rebound in sales by mid-November. Gross profit remained nearly constant at 52.4% of net sales, compared to 52.9% of net sales in 2003. Selling, general and administrative expense increased by $21,751 in 2004 from $237,012 in 2003 primarily as the result of increased sales and marketing expenditures, including direct mail, advertising and exhibitions at trade shows. Research and development expenses remained nearly level, increasing slightly by $380 from $10,563 in 2003 to $10,943 in 2004. Interest expense increased 64.8% ($5,914) due to an increase in loans obtained through the company's promissory note program. Other Income increased by $6,512 as the result of insurance refunds received for premiums paid in the previous fiscal year. The net loss increased to $121,583 in 2004 compared to a loss of $75,900 in 2003 due to lower sales volume and slightly higher costs. 7 NINE MONTHS ENDED NOVEMBER 30, 2004 VS. 2003 Net sales increased 1.8% to $1,211,091 (2004) from $1,189,358 (2003) for the nine-month period ending November 30. Supported by a 21.6% increase in international sales, over-all sales of the RES-Q-VAC increased 13.3% for the nine-months ended November 30, 2004 vs. the nine-months ended November 30, 2003. Sales of products in the Freedom60 line increased 6.2% during the same time period. Sales increases in the two core product lines were offset by a 45.1% decrease in non-core products, including Gyneco and OEM manufacturing. Gross profit increased to 54.3% of net sales in 2004 from 53.0% in 2003. Selling, general and administrative expense increased by $38,545 in 2004 from $689,454 in 2003 primarily as the result of increased sales and marketing expenditures, including direct mail, advertising and exhibitions at trade shows. Research and development expenses increased $1,615 from 2003 to 2004. Depreciation and amortization expense increased by $1,033 period over period as the result of equipment purchases during the past year. Interest expense increased 60.9% ($15,546) as a result of an increase in loans obtained through the company's promissory note program. Other income increased $13,779, period over period, largely as the result of refunds of insurance premiums paid in a prior fiscal year and the reduction of an accrued, but unpaid, expense incurred in a prior fiscal year. The net loss increased to $212,803 in for the nine-months ended November 30, 2004, compared to a loss of 176,281 in the same period of 2003. 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 November 30, 2004, $198,581 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. We have not received a demand for repayment of the loan and continue to make interest payments. 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 shares 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. 8 RES-Q-VAC We have added several features to the RES-Q-VAC which make the product much more interesting not only in the current markets but in several new markets as well. The first of these improvements is the addition of FULL STOP PROTECTION (FSP) to the RES-Q-VAC, which protects the users from any contamination from overflow and traps all pathogens inside the suction container. This feature is also a requirement of the Occupational Safety and Health Administration under OSHA 29CFR 1910.1030 - Occupational Exposure to Bloodborne Pathogens. The RES-Q-VAC is the only hand-held non-electric suction system with sterile catheters for infants, large catheters for adults, and meets the intent of the OSHA requirements with the FSP device. The Company has received a letter from OSHA confirming that the Full Stop Protector falls under the engineering controls of the Bloodborne Pathogen regulation and therefore would be required by any employer of medical personnel to protect their employees from potentially infectious materials. The Centers for Disease Control in Atlanta have issued guidelines for medical personnel for the treatment of patients with SARS which include the recommendation to employ suction devices containing HEPA type filtration on the output to prevent the spread of this disease. We believe RES-Q-VAC is the only hand-held portable suction system which meets this requirement. We have also added new sturdier connectors to our pediatric catheters, which allow them to connect directly to the adult containers with FSP. These connectors allow pediatric suctioning with the benefit of the full protection FSP device as well as with sterile catheters. These improved features come at a lower cost for the user, and a more compact kit for easier transport. Many infants are born with contagious diseases and the new system eliminates this concern among paramedics during an emergency delivery. The adult large bore yankuer is also fitted with an improved connector, for easier changeability and convenience. We have begun upgrading our RES-Q-VAC distribution channels by selecting key distributors to work with as master distribution outlets. The domestic emergency medical market has softened due to a decrease in Federal reimbursement to state and city regional areas. We have concluded that we can have more effective market penetration with major master distributors who will have much greater sales volume and be able to better support our products. In the domestic market, there are currently two major distributors who have expressed interest in working with us in this capacity, and we are moving aggressively towards finalizing these arrangements. We are also moving to consolidate international RES-Q-VAC distribution, as well, by selecting one or two master distributors in each country. We already have master distribution in Norway, Sweden, Denmark, Iceland, Finland, Estonia, Latvia, and Lithuania. We are currently negotiating single-point distribution in Italy and the United Kingdom. We believe that one main distributor will be more predisposed to advertising, promotion, and building the product franchise in each market. In return, we will be able work more closely with the distributors and be able to hold them accountable for the sales in each region. We have begun a major sales effort into the nursing home market for the RES-Q-VAC. The features of Full Stop Protection to meet OSHA requirements, sterile catheters, and the ability of RES-Q-VAC to work during extended power outages, have created a receptive market, especially in regions which recently have had major power outages, such as Florida with the recent hurricanes and the blackout in the Northeast. Patients on ventilators, tracheotomy patients, elderly with swallowing disorders, stroke, heart attack, choke victims--all may 9 need prompt effective suctioning wherever they are and for whom RES-Q-VAC may be life saving. This includes locations such as dining rooms, recreations areas, transportation and outdoor activities, among others. In the third quarter we began advertising as well as an extensive mail and telephone marketing program to introduce RES-Q-VAC to the nursing home market. After a one-time mailing to seven states, we have received more than 100 direct responses, with several being national and regional accounts involving potentially hundreds of additional nursing homes, and resulting in a number of new customers during the past several weeks. We plan to continue the mail and telemarketing to the greatest extent possible with our resources. Additional new markets we have recently sold into include schools, and hospital-based respiratory centers. We plan mailings into those markets, as well. In the school market, we have been informed that any school with a swimming pool is normally required to have suction equipment available. In addition, many schools are installing automatic electronic defibrillators (AED's) for which suction is mandatory in more than 50% of uses for this device. Our mailings to nursing homes also resulted in some interest by respiratory centers, and we believe there may be additional sales opportunities in this market. FREEDOM60 We recently joined the National Home Infusion Association (NHIA) and begun a mailing and telemarketing to all their members. This effort has resulted in several new customers including a large heath maintenance service in Utah, two centers of a national provider of intravenous services to children, one large health insurance carrier and one of largest providers of infusion services in North Florida. The decrease in reimbursement continues to encourage home health care providers to seek out effective lower cost infusion systems. We have new trials for Freedom60 in progress and a number of new leads have been generated from the recent mailings. We also have begun video conferencing to provide easier, faster and more cost-effective in-servicing and training for the Freedom60. TRADE SHOWS We continue to support our products at several trade shows. In October, we exhibited at EMS Expo in Atlanta, Georgia. In November, we exhibited at Medica in Dusseldorf, Germany, the world's largest medical products trade show. In February, 2005, we are scheduled to exhibit at the annual National Home Infusion Association conference in New Orleans, followed by an exhibition at EMS Today in Philadelphia in March, 2005. In June, 2005, we will be exhibiting at AMBEX, a large medical show in the United Kingdom. OTHER 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. We are jointly developing several new products with Gama Sanitos which will enhance the marketability of the FREEDOM60. We continue to look 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 broaden our infusion products line offerings and improve sales. 10 Our Freedom60 Syringe Infusion System is in the process of being evaluated by the Bath Institute of Medical Engineering (BIME) in the United Kingdom for eventual sale in that market. We have also added new RES-Q-VAC distributors in several countries including Croatia, Dubai, Turkey, Hong Kong and China as a result, in part, of our presence at the Medica trade show in Dusseldorf, Germany, and our ongoing international sales efforts. We continue to pursue capital investment through debt or equity to increase our marketing and sales efforts, and to enhance our existing products and add to product lines. 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. However, It has been brought to management's attention that one of the company's German distributors has commenced selling a copy, manufactured in China, of our basic RES-Q-VAC. The distributor has offered to negotiate a legal settlement in this matter. If a mutually acceptable agreement cannot be reached, we will consider litigation as an option. Although we believe that the Chinese copy is inferior in quality and lacks Full Stop Protection, it is being offered at a lower price and could adversely affect our sales in international markets. 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, 2004. 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 on Form 8-K None 11 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 January 14, 2005 --------------------- Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, and Chief Executive Officer 12