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
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Commission File Number 0-12305
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REPRO-MED SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 13-3044880
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24 CARPENTER ROAD, CHESTER, NY 10918
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (845) 469-2042
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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
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Common stock, $.01 par value 23,554,000 shares
REPRO-MED SYSTEMS, INC.
TABLE OF CONTENTS
PAGE
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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
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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)
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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