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, 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
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, 2003
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Common stock, $.01 par value 23,504,000 shares
REPRO-MED SYSTEMS, INC.
TABLE OF CONTENTS
PAGE
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PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheet (Unaudited) - May 31, 2003 .......................... 3
Statements of Operations (Unaudited) - for the Three-Months
Ending May 31, 2003 and May 31, 2002 .............................. 4
Statements of Cash Flow (Unaudited) - for the Three-Months
Ending May 31, 2003 and 2002 ...................................... 5
Notes to Unaudited Financial Statements ........................... 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..................... 6
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings ................................................. 8
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
SIGNATURES ................................................................. 9
CERTIFICATION .............................................................. 10
2
REPRO-MED SYSTEMS, INC.
BALANCE SHEET
UNAUDITED
FEBRUARY
ASSETS MAY 31,2003 28, 2003
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CURRENT ASSETS
Cash & Cash Equivalents ........................ $ 52,804 $ 16,738
Accounts Receivable, net ....................... 190,670 184,103
Inventory ...................................... 360,841 381,623
Prepaid Expenses ............................... 19,694 11,470
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TOTAL CURRENT ASSETS ............................... 624,009 593,934
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EQUIPMENT & OTHER ASSETS
Total Equipment ................................ 1,200,840 1,199,772
Less - Accumulated Depreciation ................ (802,239) (784,017)
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Net Book Value of Equipment .................... 389,601 415,755
Deposits ....................................... 31,302 54,802
Other Assets ................................... 46,024 46,135
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TOTAL EQUIPMENT & OTHER ASSETS ..................... 475,927 516,692
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TOTAL ASSETS ....................................... $ 1,099,936 $ 1,110,626
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LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable ............................... $ 257,601 $ 267,634
Note Payable to Related Parties ................ 120,000 84,000
Accrued Expenses ............................... 73,406 66,543
Note Payable to Bank ........................... 199,461 199,461
Current Portion Capital Lease Obligations ...... 26,492 26,492
Current Portion Capital Gain ................... 22,481 22,481
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TOTAL CURRENT LIABILITIES ...................... 699,441 666,611
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OTHER LIABILITIES
Long-Term Portion
Capital Lease Obligations .................... 36,602 45,614
Deferred Capital Gain Income ................... 331,595 337,215
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TOTAL LIABILITIES .................................. 1,067,638 1,049,440
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STOCKHOLDERS' EQUITY
Preferred Stock, 8% Cumulative $.01 Par Value
Authorized 2,000,000 Issued & Outstanding
10,000 Shares (liquidation value $100,000) ... 100 100
Common Stock, $.01 Par Value, Authorized
50,000,000 Shares, Issued & Outstanding
23,504,000(Includes 2,275,000 in Treasury
Shares) Respectively at May 31 and
February 28, 2003 ............................ 235,040 235,040
Additional Paid-in Capital ..................... 2,211,631 2,211,631
Accumulated Deficit ............................ (2,272,473) (2,243,585)
Treasury Stock at Cost ......................... (142,000) (142,000)
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TOTAL STOCKHOLDERS' EQUITY ......................... 32,298 61,186
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ........... $ 1,099,936 $ 1,110,626
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See Accompanying Notes to Financial Statements
3
REPRO-MED SYSTEMS, INC.
STATEMENTS OF OPERATIONS
UNAUDITED
FOR THE 3 MONTHS ENDED
MAY 31,2003 MAY 31,2002
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SALES
Net Sales ...................................... $ 429,501 $ 435,242
COST AND EXPENSES
Cost of Goods Sold ........................... 198,645 317,264
Selling, General & Administrative Expenses ... 221,939 138,562
Research and Development ..................... 8,680 5,413
Depreciation and Amortization ................ 19,734 21,588
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TOTAL COST AND EXPENSES ........................ 448,998 482,827
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LOSS FROM OPERATIONS ........................... (19,497) (47,585)
Non-Operating Income (Expense)
Interest (Expense) ........................... (8,797) (6,992)
Interest & Other Income ...................... 237 5,103
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(8,560) (1,889)
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LOSS BEFORE INCOME TAXES ....................... (28,057) (49,474)
Provision for Income Taxes ................... (831) (702)
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NET LOSS AFTER TAXES ........................... (28,888) (50,176)
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NET LOSS PER COMMON SHARE
Basic ........................................ ($0.01) ($0.01)
Diluted ...................................... ($0.01) ($0.01)
Average Common Shares Outstanding .............. 23,504,000 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, 2003 MAY 31, 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) ......................................... ($28,888) ($50,176)
Adjustments to reconcile net (loss) to cash
used in operating activities:
Depreciation and Amortization ................. 19,734 21,588
Capital Gain - building lease ................. (5,620) (5,621)
Decrease (Increase) in Accounts Receivable .... (6,567) 22,210
Decrease (Increase) in Inventories ............ 20,782 39,025
Increase in Prepaid Expenses .................. (8,224) (5,420)
Decrease (Increase) in Accounts Payable ....... (10,033) 9,244
Increase in Accrued Expenses .................. 6,863 8,342
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NET CASH (USED IN) PROVIDED BY OPERATIONS .......... (11,953) 39,192
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in Security Deposit .................. 23,500 0
Capital Expenditures .......................... (2,468) (20,018)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 21,032 (20,018)
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CASH FLOW PROVIDED BY FINANCING ACTIVITIES
Increase in Notes Payable to Related Parties .. 36,000 0
Payments, Increased Obligations on
Capitalized Leases .......................... (9,012) 10,460
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NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 26,988 10,460
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NET INCREASE IN CASH ............................... 36,067 29,634
Cash and Cash Equivalents -- Beginning of Period ... 16,738 25,669
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Cash and Cash Equivalents -- End of Period ......... $ 52,805 $ 55,303
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Supplemental disclosures of Cash Flow Information:
Interest ...................................... $ 8,797 $ 6,992
Income Taxes .................................. 831 702
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 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 $28,888 during the three months ended May 31, 2003. The Company
intends 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 May 31, 2003, and the results of operations and cash flows for
the three-month periods ended May 31, 2003 and 2002 have been included.
The results of operations for the three-month period ended May 31, 2003, are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Form 10-KSB as filed with the Securities and Exchange
Commission for the year ended February 28, 2003.
In March, 2003, the Company negotiated with the landlord of its Chester, New
York, facility to utilize $27,500 of its security deposit (held by the landlord)
to pay March and April, 2003, rent. The agreement provides for replenishment
within 90 days. At the date of this filing, the security deposit had not been
repaid.
DEBT
As of May 31, 2003, we have an outstanding balance of $199,461 on our bank line
of credit. The line agreement officially ended on June 30, 2001 but the bank
renewed the line verbally through June 30, 2003 and we are requesting the bank
to continue the line with a six-month extension.
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
6
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 MAY 31, 2003 AND 2002
Net sales overall decreased 1.3% from $435,242 (2002) to $429,501 (2003). The
reduced sales were partially offset by a $28,347 increase in OEM sales compared
to the first quarter of 2002. Sales of our core products decreased 3.1% quarter
over quarter ended May 31, 2003, with our Freedom60 sales increasing by 22.1%
and RES-Q-VAC sales decreasing slightly by 7.4%. With more than 60% of RES-Q-VAC
sales coming from exports, this slight decrease is attributed to softening of
the world economic markets and also a back order situation for our sterile
product.
Gross profit increased to 54% of net sales in 2003 from 27% in 2002 primarily
due to certain reallocations of expenses and improvements in production
efficiencies.
Selling, general and administrative expense increased by $83,377 in 2003 from
$138,562 in 2002 primarily as the result of these same reallocations.
Research and development expenses increased $3,267 from 2002 to 2003.
Depreciation and amortization expense decreased somewhat period over period as
certain equipment became fully depreciated.
Interest expense increased 72.4% as a result of an increase in loans by related
parties to the Company and additional capitalized leases.
Other income decreased by $4,866 due to refunds received during FY2003 for
expenses from a prior year and which did not recur during the current fiscal
year.
7
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, 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.
Quarter over quarter ending May 2003 the losses from Operations decreased 59%
from $47,586 for the Quarter ending May 2002 to $19,497 for the current quarter.
This decrease is due to increased sales of our higher margin products, and the
implementation of cost controls.
We continue to work towards positive cash flow and have several opportunities to
improve sales of our key products, RES-Q-VAC and Freedom60. On March 13, 2003,
we signed a contract with Joint Purchasing Corporation. JPC is a non-profit,
health services organization headquartered in New York that helps healthcare
providers strengthen their bottom line by assisting in the implementation of
cost control and resource management strategies. JPC has approximately 3,500
members and is assisting us in promoting our cost saving products to their
members.
In April, we signed agreements with an outside salesman to provide field
representation for our products and with a medical consultant who is introducing
us to national distributors and buying groups. As a result of these activities,
an agreement with a national distributor, Sammons Preston Rolyan has been signed
for Freedom60, RES-Q-VAC and our Gyneco products. Also, during this 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. We are
anticipating agreements with several additional national distributors and Group
Purchasing Organizations.
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 other material
litigation threatened against the Company.
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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, 2003.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
99.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
b) Reports on Form 8-K
Form 8-K/A, Item 4, Changes in Registrant's Certifying Accountant,
incorporated by reference dated February 28, 2003, as amended July 14,
2003.
Form 8-K, Item 9, Regulation FD Disclosure, incorporated by reference
dated May 12, 2003.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934 the Registrant has duly caused this report to be signed on its
behalf by the undersigned; thereunto duly authorized.
REPRO-MED SYSTEMS, INC.
Date: July 18, 2003 /s/ Andrew I. Sealfon
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Andrew I. Sealfon, President, Treasurer,
Chairman of the Board, Director,
Chief Executive Officer and Chief Financial Officer
9
CERTIFICATION
I, Andrew Sealfon, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Repro-Med Systems,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstance under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows, of the
registrant as of, and for the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities
particularly during the period this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which would adversely effect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material; that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: July 18, 2003
/s/Andrew I. Sealfon
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Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director,
Chief Executive Officer and Chief Financial Officer
10