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, 2006 ----------------- 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, 2006 ----- -------------------------------- Common stock, $.01 par value 30,783,286 shares REPRO-MED SYSTEMS, INC. TABLE OF CONTENTS PAGE ---- PART I ITEM 1. Financial Statements Balance Sheet (Unaudited) - November 30, 2006 and February 28, 2006 (Audited) ....................................... 3 Statements of Operations (Unaudited) - for the three-months and nine months ending November 30, 2006 and November 30, 2005 ........ 4 Statements of Cash Flow (Unaudited) - for the nine months ending November 30, 2006 and 2005 ................................. 5 Notes to Unaudited Financial Statements ........................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 7 PART II ITEM 1. Legal Proceedings ................................................. 12 ITEM 2. Changes in Securities ............................................. 12 ITEM 3. Defaults Upon Senior Securities ................................... 12 ITEM 4. Submission of Matters to a Vote of Security Holders ............... 12 ITEM 5. Other Information ................................................. 12 ITEM 6. Exhibits and Reports on Form 8-K .................................. 12 2 REPRO-MED SYSTEMS, INC. BALANCE SHEET NOVEMBER 30, FEBRUARY 28, 2006 2006 ASSETS (UNAUDITED) (AUDITED) - ------ ----------- ------------ CURRENT ASSETS - -------------- Cash & Cash Equivalents ........................ $ 93,451 $ 26,753 Accounts Receivable, net ....................... 194,190 147,579 Inventory ...................................... 402,326 347,392 Prepaid Expenses ............................... 32,610 28,182 ----------- ----------- TOTAL CURRENT ASSETS ............................. 722,577 549,906 PROPERTY & EQUIPMENT,NET ......................... 227,984 268,096 OTHER ASSETS - ------------ Deposits ....................................... 27,652 27,652 Other Assets ................................... 41,398 44,183 ----------- ----------- TOTAL OTHER ASSETS ............................... 69,050 71,835 ----------- ----------- TOTAL ASSETS ..................................... $ 1,019,611 $ 889,837 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY - ---------------------------------- CURRENT LIABILITIES - ------------------- Accounts Payable ............................... $ 366,567 $ 284,095 Notes Payable to Related Parties ............... 77,230 6,834 Accrued Expenses ............................... 38,878 46,172 Note Payable to Bank ........................... -- 198,553 Accrued Payroll and Related Taxes .............. 16,098 17,030 Accrued Interest ............................... 49,918 42,663 Accrued Preferred Stock Dividends .............. 36,000 32,000 Current Portion Capital Lease Obligations ...... 3,063 9,437 ----------- ----------- TOTAL CURRENT LIABILITIES ...................... 587,754 636,784 ----------- ----------- OTHER LIABILITIES Long-Term Portion of Leases Payable ............ -- 616 Deferred Capital Gain Income ................... 275,396 292,256 Long-Term Debt - Notes Payable ................. 855,000 530,000 ----------- ----------- TOTAL LIABILITIES ................................ 1,718,150 1,459,656 ----------- ----------- STOCKHOLDERS' DEFICIENCY - ------------------------ 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, 30,783,286 shares and 29,012,286 shares issued and outstanding at November 30, 2006 and February 28, 2006, Respectively ........................... 307,833 290,123 Additional Paid-in Capital ..................... 2,587,928 2,446,248 Accumulated Deficit ............................ (3,452,400) (3,164,290) Treasury Stock at Cost ......................... (142,000) (142,000) ----------- ----------- TOTAL STOCKHOLDERS' DEFICIENCY ................... (698,539) (569,819) ----------- ----------- TOTAL LIABILITIES & STOCKHOLDER'DEFICIENCY ....... $ 1,019,611 $ 889,837 =========== =========== 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, 2006 NOV 30, 2005 NOV 30, 2006 NOV 30, 2005 ------------ ------------ ------------ ------------ SALES - ----- Net Sales of Products ......... $ 457,991 $ 528,194 $ 1,221,724 $ 1,329,832 COST AND EXPENSES - ----------------- Cost of Goods Sold .......... 200,702 183,171 495,702 541,913 Selling, General & Administrative Expenses .... 205,094 223,672 715,205 718,698 Research and Development .... 9,990 10,118 31,622 31,470 Depreciation and Amortization 16,820 19,252 51,916 59,687 ------------ ------------ ------------ ------------ TOTAL COST AND EXPENSES ....... 432,606 436,213 1,294,445 1,351,768 ------------ ------------ ------------ ------------ INCOME (LOSS) FROM OPERATIONS . 25,385 91,981 (72,721) (21,936) Non-Operating Income (Expense) Interest (Expense) .......... (4,990) (20,309) (52,053) (57,626) Other Financing Costs ....... (88,090) (1,250) (159,390) (43,750) Interest & Other Income ..... -- -- 54 3,578 ------------ ------------ ------------ ------------ (93,080) (21,559) (211,389) (97,798) INCOME PROFIT (LOSS) .......... (67,695) 70,422 (284,110) (119,734) ------------ ------------ ------------ ------------ 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 ................. 30,522,593 26,744,064 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, 2006 2005 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (Loss) ....................................... $(284,110) $(119,734) Adjustments to reconcile net (loss) to cash (used) in operating activities: Stock-Based Compensation ....................... 159,390 43,750 Depreciation and Amortization .................. 52,053 59,687 Capital Gain - Building Lease .................. (16,860) (16,485) Increase in Accounts Receivable ................ (46,611) (17,853) Increase (Decrease) in Inventory ............... (54,934) 34,106 Increase (Decrease) in Prepaid Expenses ........ (4,428) 11,241 Increase (Decrease)in Accounts Payable ......... 82,472 (71,798) Increase (Decrease) in Accrued Expenses ........ (5,536) (31,323) --------- --------- NET CASH USED IN OPERATIONS ...................... (118,564) (108,409) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures ........................... (4,590) (9,401) --------- --------- NET CASH USED IN INVESTING ACTIVITIES ............ (4,590) (9,401) --------- --------- CASH FLOW PROVIDED BY FINANCING ACTIVITIES Issuance of Common Stock at $0.07 per share .... -- 85,000 Notes Payable - President and Others ........... 395,395 75,000 Elimination of Bank Debt ....................... (198,553) -- Payments, Increased Obligations on Capitalized Leases ............................ (6,990) (16,159) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES ........ 189,852 143,841 --------- --------- NET INCREASE IN CASH ............................. 66,698 26,031 Cash and Cash Equivalents, beginning of period ... 26,753 37,330 --------- --------- Cash and Cash Equivalents, end of period ......... $ 93,451 $ 63,361 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest ....................................... $ 52,053 $ 48,953 See Accompanying Notes to Financial Statements 5 REPRO-MED SYSTEMS, INC. NOTES TO THE FINANCIAL STATEMENTS UNAUDITED 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, 2006 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, 2006, and the results of operations and cash flows for the three month and nine month periods ended November 30, 2006 and 2005 have been included. The results of operations for the nine-month period ended November 30, 2006, 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, 2006. 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 In connection with convertible notes that the company executed, the Company is obligated to issue four shares of its common stock each year for each dollar of principal borrowed. As of November 30, 2006, the company is obligated to issue 1,771,000 shares under these agreements. Accordingly stock based compensation of $159,390 has been recorded as financing expenses. All per share calculations have been calculated as though the shares have been issued. GOING CONCERNS As shown in the accompanying financial statements, for the tree months ended November 30, 2006, the Company had an operating profit of $25,385, although due to interest and other financing costs incurred had a net loss of $67,695 and has an accumulated deficit of $3,452,400. The Company is seeking to raise additional working capital through debt or equity channels and is working with outside distributors to increase its market share in the European and U.S. markets. However, even if the Company does raise capital through the debt or equity channels or increase its sales through new strategies, there can be no assurances that the net proceeds of the capital raised or the revenue generated from new marketing strategies will be sufficient to enable it to develop business to a level when it will generate profits and cash flow from operations. 6 These matters raise substantial doubt about the Company's ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. At November 30,2006, the president of the company has advanced the company $77,229 for working capital. The loan is secured by selected accounts receivable balances. 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 2006 VS. 2005 Sales of the Freedom60 and accessories experienced a net increase of 79.4% quarter over quarter ended November 30, 2006 due to several major new accounts added primarily in the use IgG administrations for treatment of Primary Immune Deficiency. However, due to the one-time emergency government purchase of RES-Q-VAC in the summer of 2005 in the aftermath of Hurricane Katrina, sales of the RES-Q-VAC declined 39% during the three months ending November 30th, 2006 as these sales did not repeat. 7 As a result, total sales for the period declined 13.3% to $457,991 from $528,194 as the increase in Freedom60 and an international improvement in the quarter of 26.4% were not sufficient to overcome the decrease in RQV sales due to the one time Katrina order not being repeated. OEM sales decreased this quarter by 35% due to the ordering patterns of these customers. Sales of our Gyneco products declined during this period by 15%. Net Income from operations shows a profit of 25,385 for the three months ending November 30,2006 as compared to a profit of $91,981 for the same quarter in 2005. Net income showed a loss of $67,695 as compared to a profit of $70,442 for the three months ended November 30, 2005. The company has showed operating profits now for two successive quarters. Gross profit increased to 56.2% compared to 65.3% of net sales three months year over year ending November 30, 2006, due to reclassification of certain cost of goods, and labor levels during the period. Selling, general and administrative expense decreased 9.1% from $223,672 to $205,094 over this period. Research and development expenses remained nearly level, decreasing slightly by $128 from $10,118 in 2005 to $9,990 for the three month period ending November 30, 2006. NINE MONTHS ENDED NOVEMBER 30, 2006 VS. 2005 Sales of the products in the Freedom60 product line increased by 56% during the nine months ended November 30, 2006 due to increased sales in the IgG market as well as general acceptance of the Freedom60 for general ambulatory infusions. For Res-Q-Vac, due to a softening of sales in the beginning of the year in the international market and without the repeat of the Hurricane Katrina sale, the Res-Q-Vac sales decreased by 35.2%. Net sales for the period declined 9.5% as the increases in Freedom60 sales were not able to overcome the decline in the Res-Q-Vac markets. Sales of the OEM products increased 9.5% for the nine months ended November 30, 2006. Sales in the Gyneco product line continue to decrease and declined by 7.4% for the nine months ending November 30, 2006 as compared to the same period in 2005. Gross profit was substantially unchanged at 59.4% from 59.2%. Selling, general and administrative expense decreased slightly from $718,698 to $715,205 over the same period. Research and development expenses remained nearly level, increasing slightly by $152 from $31,470 in 2005 to $31,622 for the nine month period ending November 30, 2006. Depreciation and amortization expense decreased by $7,771 period over period as the result of fewer equipment purchases during the past year. The net loss for the nine months ended November 30, 2006 increased to $284,110 from $119,734. 8 RES-Q-VAC The RES-Q-VAC(R) Emergency Airway Suction System, is a lightweight, portable,hand-operated suction device that removes fluids from a patient's airway by attaching the RES-Q-VAC pump to various proprietary sterile and non-sterile single-use catheters sized for adult and pediatric suctioning. The one-hand operation makes it extremely effective and the product is generally found in emergency vehicles, hospitals and wherever portable aspiration is a necessity, including backup support for powered suction systems. The disposable features of the RES-Q-VAC reduce the risk of contaminating the technician from HIV or SARS when suctioning a patient or during post treatment cleanup. All of the parts that connect to the pump are disposable. A critical component and advantage of the RES-Q-VAC is the Full Stop Protection(R) filter a recently patented filtering system that both prevents leakage and over-flow of the aspirated fluids, even at full capacity, and traps all air and fluid borne pathogens and potentially infectious materials within the sealable container. This protects users from potential exposure to disease and contamination. The Full Stop Protection filter meets the requirement of the Occupational Safety and Health Administration as described below. The Company has received a letter from OSHA confirming that the RES-Q-VAC with the Full Stop Protection falls under the engineering controls of the Bloodborne Pathogen regulation and that the Products use would fulfill the regulatory requirements. OSHA 29CFR 1910.1030 - Occupational Exposure to Bloodborne Pathogens requires that employers of "...emergency medical technicians, paramedics, and other emergency medical service providers; fire fighters, law enforcement personnel, and correctional officers... must consider and implement devices that are appropriate [to contain bloodborne pathogens], commercially available and effective." These first responders risk exposure to serious disease, and the employers may risk OSHA violations and lawsuits if they fail to consider protective measures such as Repro-Med's Full Stop Protection for RES-Q-VAC. The Company has received a letter from OSHA indicating the RES-Q-VAC meets the intent of this regulation. On April 29, 2003, the Centers for Disease Control issued additional guidelines for the control of SARS (Sudden Acute Respiratory Syndrome) which requires all suction systems to have filtration equivalent to a HEPA filter to prevent the spread of this disease. At the current time, we believe that the RES-Q-VAC with Full Stop Protection is the only portable device to comply with the CDC directives. We have also added new sturdier connectors to our pediatric catheters, which allow them to connect directly to the adult containers with Full Stop Protection. These connectors allow pediatric suctioning with the benefit of the Full Stop Protection 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. 9 We consolidated international RES-Q-VAC distribution, as well as our single point distribution in the UK. We are now providing direct support to our UK favored partners such as 24 hour deliver in the local currency. We also have master distribution in Norway, Sweden, Denmark, Iceland, Finland, Estonia, Latvia, and Lithuania. We are working towards single-point distribution in each country, where possible. 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 major sales efforts into the hospital 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 last years hurricanes and the blackout in the Northeast. Patients on ventilators, tracheotomy patients, elderly with swallowing disorders, stroke, heart attack, choke victims--all may 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. Currently the bulk of the Company's RES-Q-VAC sales, which represent approximately 40% of the Company's quarterly revenue, are to emergency rescue service companies. Over the course of the past few months, RMS has refocused its selling efforts on the hospital market, directly introducing the Res-Q-Vac product to over 35 hospitals, including three world class thought leading institutions that have accepted the Product as their emergency back-up standard. RMS has also entered into agreements with geographically strategic distributors to hospital markets, to increase the Company's reach. Entry into the hospital market is in its early stages, but as is evidenced by the initial response, RMS believes this will be a strong contributor to the growth of the Company. In the first quarter we had retained a marketing and sales consulting group to assist the Company in its sales efforts which relationship did not prove successful. We have been rebuilding our distribution network and have begun an aggressive sales effort for the RES-Q-VAC into the hospital market as we continued our direct mail and telephone marketing program to introduce RES-Q-VAC to the nursing home market and now the hospital market. We also conducted discussions with nursing home chains, hospitals and distributors in this market. We plan to continue the mail and telemarketing campaign to the greatest extent possible with our resources. We are focusing our greatest efforts to introduce the RES-Q-VAC into specific areas of hospitals, including crash carts, respiratory therapy and other departments. The non-battery, non-electric feature of the RES-Q-VAC appeals to hospitals which wish to reduce or avoid the costs associated with maintaining battery operated equipment in reliable, working order. FREEDOM60 The FREEDOM60(R) Syringe Infusion Pump is designed for ambulatory medication infusions. Ambulatory infusion pumps are most prevalent in the home care market. Other potential applications for the FREEDOM60 are pain control, the infusion of specialized drugs such as IgG, and chemotherapy. The home infusion therapy market is comprised of approximately 4,500 sites of service, including local and national organizations, hospital-affiliated organizations, and national home infusion organizations, and produces approximately $4.5 Billion in revenue annually (Ref: www.nhianet.org). With insurance reimbursement in a severe decline, there is a tremendous need for a low-cost, effective alternative to electronic and expensive disposable IV administration devices for the home care and nursing home market. 10 The FREEDOM60 provides a high-quality delivery to the patient at costs similar to gravity and is targeted for the home health care industry, patient emergency transportation, and for any time a low-cost infusion is required. For the home care patient, FREEDOM60 is an easy-to-use lightweight mechanical pump using a 60cc syringe, completely portable, cost effective and maintenance free, with no batteries to replace and no cumbersome IV pole. For the infusion professional, FREEDOM60 delivers precise infusion rates and uniform flow profiles providing consistent transfer of medication. A Form 510(k) Premarket Notification for initial design of the FREEDOM60 as a Class II device was approved by the FDA in May 1994. The Company also markets the FREEDOM60-FM, an enhanced version of the FREEDOM60 which contains an electronic flow monitor system that provides occlusion and end of infusion alarm. This product is directed at nursing homes, hospitals and pediatric ambulatory applications where alarms are generally required for nursing acceptance. Nurses also appreciate being able to visualize the drug volume by reading the scale on the syringe. We have expanded the use of the FREEDOM60 to cover most antibiotics including the widely used and somewhat difficult to administer vancomycin. We have also found a following for FREEDOM60 for use in treating thalissemia with the drug desferal. In Europe we experienced success in using the FREEDOM60 for pain control, specifically post-operative epidural pain administration. Our European market also uses the FREEDOM60 for chemotherapy. We believe there is a new market for the FREEDOM60 for use in Primary Immune Deficiency, injecting immune globulin (IgG) under the skin as a subcutaneous administration, as is evidenced by the large growth in the Company's sales of this product. This method has provided patients with vastly improved quality of life with much fewer unpleasant side effects over the traditional intravenous route. The FREEDOM60 is an ideal system for this administration since the patient is able to self-medicate at home, the pump is easily configured for this application, and the FREEDOM60 is the lowest cost infusion system available in a heavily cost constrained market. Historically the Company has marketed the Freedom60 directly and through specialty distributors. Increased market recognition for this product, and new subcutaneous medical applications of Immune Globulin treatments create a large opportunity for this Product. RMS is aggressively pursuing the home care, hospital and "closed-door" pharmacy markets dedicated to treatments using intravenous administration, to use the Freedom60 for the application of their therapies. The annual market size for infusion therapy is over $500 million for home care and over $1.5 billion for hospitals, once again not including additional logical market segments, many of which parallel the Res-Q-Vac markets, such as emergency and military. LIQUIDITY AND CAPITAL RESOURCES In June of 2006 Company entered into a loan agreement with a director the proceeds of which were used to repay the $198,553 bank loan from M&T Bank. In raising capital beginning in February 2004, the Company issued promissory notes in the total amount of $432,000. These five year promissory notes pay 2% over prime plus four shares of common stock per year for every year the loan is in place. The loans are due on March 30, 2009. 11 An agreement with a marketing management company was terminated on November 11, 2006 for various reasons including the failure of this company to meet the minimum sales agreed goals. The management fees and rights to earn warrants were all based on this performance which was not met, and therefore these fees are not earned and not owed. A note issued totaling $50,000 was therefore canceled. Our efforts to enter new markets and expand existing sales channels are capital-intensive. Access to capital markets for these efforts has been important in the past, and will continue to be vital as we seek to fully implement our marketing plans and work toward achieving a positive cash-flow position. 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 had commenced selling a copy, manufactured in China, of our basic RES-Q-VAC. The distributor has agreed to cease selling these copies but we are concerned about the possibility of these copies appearing elsewhere. 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, 2006. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None 12 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 22, 2007 - --------------------- Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, and Chief Executive Officer 13