FORM 10-KSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended FEBRUARY 29, 2008
Commission File Number 0-12305
REPRO-MED SYSTEMS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
New York 13-3044880
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
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Common stock, $.01 Par Value Over the Counter Bulletin Board
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 by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B, is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this Form 10-KSB. [X]
Based on the closing sales price of February 29, 2008, the aggregate
market value of the voting and nonvoting common equity held by non-affiliates of
the registrant was $2,693,399.
The number of issued outstanding of the registrant's common stock, $.01
par value was 34,829,286 at February 29, 2008, which includes 2,275,000 shares
of Treasury Stock.
Page 1 of 23
Repro-Med Systems, Inc.
Table of Contents
Page
PART I
Item 1. Description of Business 3
Item 2. Description of Property 11
ITEM 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Shareholder Matters 11
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
ITEM 7. Financial Statements 15
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 16
Item 8A. Controls and Procedures 16
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons: Compliance with Section 16(a) of the
Exchange Act 16
ITEM 10. Executive Compensation 18
ITEM 11. Security Ownership of Certain Beneficial Owners
and Management 18
ITEM 12. Certain Relationships and Related Transactions 20
ITEM 13. Accountants Fees and Services 21
PART IV
Item 14. Exhibits and Reports on Form 8-K 22
Signatures 23
Exhibit 31.1
Exhibit 31.2
Page 2 of 23
PART I
FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT CONTAINS CERTAIN "FORWARD-LOOKING" STATEMENTS AS THAT TERM IS
DEFINED IN THE FEDERAL SECURITIES LAWS. GENERALLY THESE STATEMENTS RELATE TO
BUSINESS PLANS OR STRATEGIES, PROJECTED OR ANTICIPATED BENEFITS OR OTHER
CONSEQUENCES OF MANAGEMENTS PLANS OR STRATEGIES, PROJECTED OR ANTICIPATED
BENEFITS FROM ACQUISITIONS TO BE MADE BY US, OR PROJECTIONS INVOLVING
ANTICIPATED REVENUES, EARNINGS OR OTHER ASPECTS OF OUR OPERATING RESULTS. THE
EVENTS DESCRIBED IN FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT
MAY NOT OCCUR. THE WORDS "MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE,"
"PROJECT," "PLAN," "INTEND," "ESTIMATE," AND "CONTINUE," AND THEIR OPPOSITES AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. WE
CAUTION YOU THAT THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE OR
EVENTS AND ARE SUBJECT TO A NUMBER OF UNCERTAINTIES, RISKS AND OTHER INFLUENCES,
MANY OF WHICH ARE BEYOND OUR CONTROL, THAT MAY INFLUENCE THE ACCURACY OF THE
STATEMENTS AND THE PROJECTIONS UPON WHICH THE STATEMENTS ARE BASED. FACTORS THAT
MAY AFFECT OUR RESULTS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS AND
UNCERTAINTIES DISCUSSED IN ITEM 6 OF THIS ANNUAL REPORT UNDER "FACTORS THAT MAY
AFFECT FUTURE RESULTS AND FINANCIAL CONDITION".
ANY ONE OR MORE OF THESE UNCERTAINTIES, RISKS AND OTHER INFLUENCES COULD
MATERIALLY AFFECT OUR RESULTS OF OPERATIONS AND WHETHER FORWARD-LOOKING
STATEMENTS MADE BY US ULTIMATELY PROVE TO BE ACCURATE. OUR ACTUAL RESULTS,
PERFORMANCE AND ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR
IMPLIED IN THESE FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO
PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER FROM NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
BUSINESS OF REGISTRANT
REPRO-MED Systems, Inc. ("REPRO-MED", or "RMS Medical Systems" or the
"Company"), was incorporated in the State of New York in March of 1980. The
Company designs, manufactures and markets proprietary medical devices primarily
for emergency medical applications and ambulatory infusion therapy. These
products are regulated by the FDA. The Company's development and marketing focus
are primarily concentrated on the RES-Q-VAC(R) and the FREEDOM60(R) products.
CORPORATE HISTORY
Repro-Med Systems, Inc. was incorporated under the laws of the State of New York
in March 1980. The corporate offices are located at 24 Carpenter Road, Chester,
New York 10918. The telephone number is 845-469-2042, fax is 845-469-5518 and
the Internet site is www.rmsmedicalproducts.com
PRODUCTS
FREEDOM60(R) SYRINGE INFUSION SYSTEM
The FREEDOM60 uses an innovative "engine" to create a constant pressure drive
system which we believe results in substantially greater safety, reliability,
and an overall higher quality infusion than other devices on the market -- all
at a lower cost. The basic drive mechanism used in the FREEDOM60 represents the
first of a line of products, which we intend to develop to broaden the product
applications and appeal.
FREEDOM60(R) uses rate-controlled tubing with standard slide clamp and luer-lock
connector on the patient end. Our patented luer disc connector insures
that only the Company's FREEDOM60(R) tubing sets will function with the pump.
Non-conforming tubing sets, without the patented disc connector, are ejected
from the pump to prevent the danger of an overdose or runaway pump from injuring
the patient. Repro-Med Systems' objective is to build a product franchise with
FREEDOM60(R) and the sale of patented disposable tubing sets.
Proprietary technology employed in the FREEDOM60 uses constant pressure to
administer drugs. FREEDOM60 avoids an important problem faced by electronic
pumps currently on the market which employ constant flow mechanisms that result
in potentially dangerous, high pressures placed on indwelling catheters or
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under the skin. In order to protect the patients, these pumps must contain an
overpressure sensor to shut the pump off when a potentially threatening pressure
is detected. Some of these electronic pumps will generate extremely high
pressures exceeding 70psi before the over pressure system will activate. Also
with these systems, the alarm can be falsely triggered, and the administration
halted until a health professional can verify that the infusion is in fact safe
and the pump may be reactivated. In either case, the patient is at risk from
damaging pressures or not receiving the medication required. .
Other unsafe conditions of conventional equipment include runaway
administrations; overdose due to programming errors or pump failure, and over
pressure resulting in burst blood vessels or failed internal access devices. The
expanded use of the FREEDOM60 demonstrates that the FREEDOM60 eliminates these
potential outcomes and insures a safe, constant, controlled infusion. Electronic
devices will increase infusion pressure while attempting to continue an infusion
at the programmed rate, while the FREEDOM60's design maintains a safe constant
pressure and thereby automatically reduces the flow rate accordingly if any
problems of administration occur.
A recent enhancement to the FREEDOM60 includes the Flow Monitor version or the
FREEDOM60-FM. The FREEDOM60-FM contains a microprocessor controlled occlusion
alarm which alerts the user of a blocked flow or, end of infusion. This product
is directed at nursing homes, hospitals, and pediatric ambulatory applications
where alarms are generally required for nursing acceptance.
The FREEDOM60(R) provides a high-quality delivery to the patient at costs
similar to a gravity drip system and is targeted for the home health care
industry, patient emergency transportation, and for any time a safe, consistent,
and low-cost infusion is required.
We have surmised and have recently confirmed anecdotally that the Freedom60
system because of its constant safe pressure design is the ideal technology to
infuse this medication regardless of cost. IgG is quite viscous, and the
Freedom60 will adjust automatically to patient tissue saturation, preventing
complications at the administration sites which include pain, swelling, redness
and possible tissue damage. Competitive electronic devices, which are also used
for this indication, generally deliver higher and quite possibly harmful
pressures, and will reach occlusion pressures, which will frequently cause the
electronic pumps to shut down prior to completing the drug delivery.
FREEDOM60 MARKETING APPLICATIONS
The primary market for the FREEDOM60 is the home care patient. For home care,
the FREEDOM60 is ideal because it is completely portable, lightweight and
easy-to-use. The mechanical pump acts on a 60cc syringe and is cost effective
and maintenance free. It requires no electric, no batteries 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
510k Premarket Notification for the design of the FREEDOM60 as a Class II device
was approved by the FDA in May 1994.
The latest application in home care for the Freedom60 is in the treatment of
Primary Immune Deficiency using a subcutaneous administration of immune globulin
better known as SCIG therapy. . This disease may affect some 500,000 (ref: IDF
Foundation as many as 1/500) people in the USA and is reportedly under
diagnosed. It is believed that the world-wide market may ultimately be larger
than currently estimated. Previously IgG was solely administered using a
conventional intra-venous system, however; the subcutaneous route of
administration has seen increased usage over the past year with the introduction
of an FDA approved IgG for this application. This method has provided patients
with vastly improved quality of life with much fewer unpleasant side effects
over the traditional intravenous route. The FREEDOM60(R) is generally 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 we believe the
FREEDOM60(R) is the best performing pump system available at any price, but
happens to be the lowest cost infusion system on the market. Due to its safe,
limited and controlled pressure mechanism, the Freedom60 adjusts automatically
to the patient's needs providing a reliable and comfortable administration.. We
continue to make an extensive effort to market our Freedom60 Syringe Infusion
System for SCIG therapy and have participated in several educational primers for
nurses as well as conducted web based training sessions. We are experiencing
interest in export markets and have also begun training a distributor in
Scandinavia to introduce the Freedom60 into those markets.
Additional applications for the FREEDOM60(R) include pain control,
chemotherapeutics and the infusion of specialized drugs such as the widely used
and somewhat difficult to administer vancomycin. We have found a following among
providers of the FREEDOM60(R) for use in treating thalissemia with the drug
desferal, and in Europe found it is being used for pain control, specifically
post-operative epidural pain administration 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 generates
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.The latest
application in home care for the Freedom60 is in the treatment of Primary Immune
Deficiency using a subcutaneous administration of immune globulin better known
as SCIG therapy. . This disease may affect some 500,000 (ref: IDF Foundation as
many as 1/500) people in the USA and is reportedly under diagnosed. It is
believed that the world-wide market may ultimately be larger than currently
estimated. Previously IgG was solely administered using a conventional
intra-venous system, however; the subcutaneous route of administration has seen
increased usage over the past year with the introduction of an FDA approved IgG
for this application. This method has provided patients with vastly improved
quality of life with much fewer unpleasant side effects over the traditional
intravenous route. The FREEDOM60(R) is generally 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 we believe the FREEDOM60(R) is the
best performing pump system available at any price, but happens to be the lowest
cost infusion system on the market. Due to its safe, limited and controlled
pressure mechanism, the Freedom60 adjusts automatically to the patient's needs
providing a reliable and comfortable administration.. We continue to make an
extensive effort to market our Freedom60 Syringe Infusion System for SCIG
therapy and have participated in several educational primers for nurses as well
as conducted web based training sessions. We are experiencing interest in export
markets and have also begun training a distributor in Scandinavia to introduce
the Freedom60 into those markets.
Page 4 of 23
Additional applications for the FREEDOM60(R) include pain control,
chemotherapeutics and the infusion of specialized drugs such as the widely used
and somewhat difficult to administer vancomycin. We have found a following among
providers of the FREEDOM60(R) for use in treating thalissemia with the drug
desferal, and in Europe found it is being used for pain control, specifically
post-operative epidural pain administration 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 generates
approximately 4,500 sites of service, including local and national
organizations, hospital-affiliated organizations, and national home infusion
organizations, and generates 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.
IMPORTANCE OF INSURANCE REIMBURSEMENT TO FREEDOM60 SALES
The ambulatory market has been rapidly changing due to reimbursement issues. The
denial of insurance reimbursement has drastically reduced the market share of
high-end competitors with electronic type delivery systems as well as high-cost
disposable non-electric devices, providing an opportunity for the FREEDOM60(R).
We challenged the previous Freedom60 reimbursement for Medicare by requested a
coding verification for the Freedom60 with the Centers for Medicare and Medicaid
services (CMS). The Freedom60 was reclassified by CMS on May 21, 2007 for use
under code E0779 which increases the reimbursement for the Freedom60 for all
billable syringe pump applications approved by Medicare. In June 2007 Medicare
issued a letter of clarification stating in part:
"The Freedom60 Syringe Infusion Pump is the only allowable pump to be billed
with the Subcutaneous Immune Globulin (SCIG). The code for this pump for dates
of service 1/1/00 - 5/16/07 is E0780. For dates of service on or after 5/17/07
the correct code is E0779 per SADMERC. The items being billed must be supported
by corresponding documentation. All other pumps or modifiers will result in a
denial".
At this time we believe we are the only Medicare approved device for SCIG.
ECONOMIC BENEFITS OF FREEDOM60(R) PUMP AND DISPOSABLE SALES
In the past we marketed the pump priced at a discount to promote sales of tubing
sets. We now market pumps at fair market value. Originally when the Freedom60
was introduced, we had envisioned the revenues being primarily derived from the
tubing set sales due to the market we were penetrating and the medical practices
of the time. In the current market we have shifted focus from the generic market
to a specialty market, and tubing set usage for all markets have been revised
due to cost considerations. We have adjusted to a new economic model by
re-pricing the pump and the tubing sets accordingly.
We have sold approximately 7,000 pumps since March 2000 and approximately 1,638
pumps during the past fiscal year. Most of our current sales are made directly
to health care providers, although we maintain distributors in both the domestic
and foreign markets. Although it is impossible to determine exactly how many
pumps are in operation at any given time, we estimate that, after allowing for
lost pumps and those no longer in use by the purchaser, there are approximately
4,200 FREEDOM60(R) pumps currently in operation. The FREEDOM60(R) pump is
designed for a minimum use of 4,000 times which at our list price is amortized
at a low $.13 per use. The tubing sets currently have an average price of $4.25.
We estimate that each pump uses an average of four to six tubing sets per month.
If the pump is operated up to 4 times per day, the total uses per month would be
48, and thus the pump life expectancy is anticipated to be over six and a half
years depending upon the type of application. Tubing sets can be used from one
application to many administrations lasting a few days.
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COMPETITION FOR THE FREEDOM60(R)
FREEDOM60(R) competes in the United States infusion pump market based on price,
service and product performance. Most of the competitors have significantly
greater resources for research and development, manufacturing and marketing, and
as a result may be better prepared to compete for market share even in areas in
which FREEDOM60(R) products may be superior. The industry is subject to
technological changes and there can be no assurance that we will be able to
maintain any existing technological lead long enough to establish our products
and to sustain profitability.
RES-Q-VAC PORTABLE MEDICAL SUCTION
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(R) 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(R) reduce the risk of contaminating the health professional from
HIV or SARS when suctioning a patient or during post treatment cleanup. All of
the parts that connect to the pump are disposable.
We recently introduced a new updated version called RES-Q-VAC ULTRA which comes
with our FSP filter, new pediatric connectors, new graduated canister, new adult
catheters, and new convenient carry pouch. It is also available with a patent
pending, fully malleable, portable LED white light source which is attached to
the top of the canister system and provides illumination for the medical
professional during night time or low light conditions.
A critical component and advantage of the RES-Q-VAC(R) is the Full Stop
Protection(R), (FSP(R)) a recently patented filtering system that prevents both
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 healthcare providers from potential
exposure to disease and contamination.
On April 29, 2003, the Centers for Disease Control (CDC) 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(R) with Full Stop Protection(R) is the only portable device to comply
with the CDC directives.
With the new connectors added to our pediatric catheters, which allow them to
connect directly to the adult canisters with FSP(R), enable pediatric suctioning
with the benefit of the Full Stop Protection(R) device as well as with sterile
catheters. Many infants are born with contagious diseases and the new system
eliminates this concern among paramedics during an emergency delivery.
A critical advantage of our RES-Q-VAC(R) airway suction system is versatility.
With the addition of Full Stop Protection(R), we created specific custom
RES-Q-VAC(R) kits for various vertical markets:
Emergency Medicine - we make several special kits for emergency use, which
contain all the catheters necessary to treat adults as well as infants or
children. These first responder kits are generally non-sterile. We also have
special attachments available for the advanced paramedic to treat patients who
are intubated.
Respiratory - in-home care, long term care, situations requiring frequent
suctioning such as cystic fibrosis patients, patients with swallowing disorders,
elderly, patients on ventilators and with tracheostomies all benefit from the
portability, cost and performance of the RES-Q-VAC(R). In hospitals, the
RES-Q-VAC(R) provides emergency back up due to power loss or breakdown of the
wall suction system.
Hospital Use - for crash carts, the emergency room, patients in isolation,
moving patients throughout the hospital (e.g., from ICU to Radiology) and backup
for respiratory, RES-Q-VAC(R) is available sterile with Full Stop Protection(R)
for the ultimate in performance and to meet all the OSHA regulations and CDC
guidelines
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for use in treating patients in isolation, and in any location. Hospitals are
required under the EMTALA regulations to provide emergency treatments to
patients anywhere in the primary facility and up to 250 yards away. The
RES-Q-VAC insures full compliance with these regulations and helps minimize
unfavorable outcomes and potential lawsuits there from. We provide special
hospital kits, which are fully stocked to meet all hospital applications for
both adult and pediatric.
Nursing homes, hospice, sub-acute - we provide special configurations for dining
areas, portable suctioning for outside events and travel. Chronic suction can be
accommodated with RES-Q-VAC(R), which can be left by the bedside for rapid use
during critical times.
Dental applications - we offer a version of the RES-Q-VAC(R), called
DENTAL-EVAC(R) which addresses the needs of oral surgeons for emergency back up
suction during a procedure. DENTAL-EVAC(R) is supplied with the dental suction
attachments such as saliva ejector and high volume evacuator.
Military Applications -Due to its light weight, portability, and rapid
deployment, we believe that the RES-Q-VAC(R) is ideal for any military
situation. In addition, exposure to chemical weapons of mass destruction such as
Sarin is best treated by rapid, aggressive, and repeated suctioning. We believe
that the RES-Q-VAC(R)'s compact size, powerful pump, and full protection of the
user from any contamination, gives us a competitive edge in this market.
We are planning a direct sales effort into the hospital market and continue our
effort into nursing homes working with a national distributor and by direct
sales to penetrate this market. Due to power outages, hurricanes such Katrina
and other disasters; there is interest for the RES-Q-VAC for these markets. In
the hospital, the RES-Q-VAC is used on crash carts, emergency room, patients in
isolation, for tracheotomy patients and to meet new hospital regulations such as
EMTALA. Hospitals also are cognizant of infectious disease control and we
continue to make them aware of our Full Stop Protection(R) filter, 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 Blood borne Pathogens. The RES-Q-VAC(R) 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
Full Stop Protection(R). The Company has received a letter from OSHA confirming
that the Full Stop Protection(R) falls under the engineering controls of the
Blood borne 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 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(R) is the
only hand-held portable suction system, which meets this requirement.
RES-Q-VAC DISTRIBUTION
RES-Q-VAC(R) is sold domestically and internationally by emergency medical
device distributors. These distributors generally sell to the end user and
advertise these products in relevant publications and in their catalogs. We have
begun marketing the new system with a national master distributor and we are in
the process of introducing the new offering to the international market with a
major distributor in Italy.
OSHA AND CDC REQUIREMENTS
The Full Stop Protection(R) 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(R) with the Full Stop Protection(R) falls
under the engineering controls of the Blood borne Pathogen regulation and that
the Products use would fulfill the regulatory requirements.
OSHA 29CFR 1910.1030 - Occupational Exposure to Blood borne 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 blood borne 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
Page 7 of 23
consider protective measures such as Repro-Med's Full Stop Protection(R) for
RES-Q-VAC(R). The Company has received a letter from OSHA indicating the
RES-Q-VAC(R) meets the intent of this regulation.
COMPETITION FOR THE RES-Q-VAC(R)
We believe that the RES-Q-VAC(R) is currently the performance leader for manual,
portable suction instruments. In the emergency market, the primary competition
is the V-Vac from Laerdal. The V-Vac is more difficult to use, cannot suction
infants, and cannot be used while wearing heavy gloves such as in chemical
warfare or in the extreme cold. Laerdal had more resources than Repro-Med
Systems and had begun marketing the V-Vac before RES-Q-VAC(R) entered the
market. Another competitor is Ambu, with the Res-Cue brand pump, a product
similar to our design, made in China. We believe that the product is not as well
made or as versatile, and may not be purchased by the military segment of the
market due to lines of supply concerns. With additional capital, we believe we
will continue to maintain and build market share and gain a significant portion
of the electric suction pump market. We believe that the addition of Full Stop
Protection(R) substantially separates the RES-Q-VAC(R) from competitive units,
which tend to leak fluid when becoming full or could pass airborne pathogens
during use. There is a heightened concern from health care professionals
concerning exposure to disease and we believe the RES-Q-VAC(R) provides improved
protection for these users.
GYNECOLOGICAL INSTRUMENTS
We purchased the Gyneco product line in 1986. Products included the Masterson
Endometrial Biopsy Kit for in-office biopsy sampling procedures and the Thermal
Cautery System used for tubal ligation procedures.
Masterson Endometrial Biopsy Kit is a self-contained unit that offers a quick
and easy procedure for in-office tissue sampling. The powerful vacuum pump is
easily operated with one hand. The pump is supplied with sterile disposable
curettes and specimen containers presented in a kit.
The Thermal Cautery System is designed to provide a safe, reliable and effective
method of female sterilization. The unit is small, compact and portable. A
rechargeable battery supplies power. The unit uses disposable components that
include the cautery hook assembly, cannula and trocar stylette.
CONTRACT MANUFACTURING
Historically, we have used OEM profits to partially fund internal product
development that has resulted in RES-Q-VAC(R) and FREEDOM60(R). In the past OEM
sales have been as high as 70% of sales (1996). As the company transitioned from
OEM sales to our own higher margin proprietary sales, the OEM component has
decreased substantially. In 2008 and 2007, contract manufacturing declined in
sales from 9.90% in 2007 to 5.35% of sales, in year ended 2008. The Company has
transitioned from these contracts to building and selling its own proprietary
products due to the much-improved margins associated with directly marketed
devices.
We are also in various stages of development of other additional proprietary
medical devices. Thus, we have products currently on the market, new products in
development to be marketed and long range products to support and enhance future
growth. Research and Development efforts have been curtailed as we directed most
of our resources to marketing and sales of our existing products.
SALES AND DISTRIBUTION
Freedom60 systems are sold through both direct sales efforts concentrated on
large national accounts and a network of medical device distributors.
Gynecological instruments are sold from the corporate offices primarily through
repeat business. Distribution channels for the products are those generally
common to their respective markets. In recent years our emergency medical
products are sold through a wide network of domestic and international
distributors in 31 countries.
Over the past year, we have continued to upgrade our EMS RES-Q-VAC(R)
distribution channels by selecting key distributors to work with as master
distribution outlets. The domestic emergency medical market has softened
somewhat due to a decrease in Federal reimbursement to the states and cities for
firefighters, police and emergency services. We have concluded that we can have
more effective market penetration with major
Page 8 of 23
master distributors who are able to better support our products.
We already have master distributors in United Kingdom, Norway, Sweden, Denmark,
Iceland, Finland, Estonia, Latvia, and Lithuania. 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.
Additional new markets we have recently sold include schools and hospital-based
respiratory centers. We are also planning mailings into those markets. 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.
We continue to support both of our main product lines at both National and
International trade shows. In November, we exhibited at Medica in Dusseldorf,
Germany; the world's largest medical products trade show. In March 2008 we
exhibited at the EMS Today Conference & Exposition in Baltimore, NHIA show in
Phoenix, AZ, AAAAI in Philadelphia as well as attended a CSL Primer. Currently
we are scheduled to attend the October EMS show. We have also have reserved our
space for the Medica 2008 trade show scheduled for November 2008.
The table below presents the product mix for the last two fiscal years.
2008 2007
% OF SALES % OF SALES
---------- ----------
Infusion Therapy 55.33% 39.33%
Medical Suction 35.16% 44.99%
Gynecological Instruments 3.14% 5.06%
Contract Manufacturing 5.35% 9.90%
Other .08% .72%
MANUFACTURING AND EMPLOYEES
The Company's employees perform at the Company's facility electromechanical
assembly, calibration, pre- and post-assembly quality control inspection and
testing, and final packaging for all products. Products are assembled using
molded plastic parts acquired from several U.S. vendors and one supplier located
in Taipei, Taiwan. The availability of parts has not been a problem. The cost
and time required to fabricate molds to manufacture parts can slow the
development of new products and might temporarily limit supply if we determine
it is advisable to seek alternate sources of supply for existing products. Our
policy has been to have multiple vendors as suppliers, where practicable, that
also offer mold-building capabilities as a service.
As of February 29, 2008, we employed 22 employees, 14 were assigned to
manufacturing operations, 4 to sales and customer support, 1 to administrative
functions, 1 to quality assurance functions, 1 Vice President of Operations
(responsible for manufacturing, warehouse and procurement operations), and 1
Executive Officer. The Company is dependent on the services of Andrew Sealfon
who serves as President, head of Research and Development and is also
instrumental in sales, marketing and finance. The Company does not have
insurance on the life of Andrew Sealfon and may not be able to replace him if
the need arose.
REGULATIONS GOVERNING THE MANUFACTURING OPERATIONS
The Food, Drug and Cosmetic Act governs' the development and manufacturing of
all medical products. The Act requires us to register the facility, list
devices, file notice of intent to market new products, track the locations of
certain products and to report any incidents of death or serious injury relating
to the products with the FDA. We are subject to civil and criminal penalties
and/or recall seizure or injunctions if we fail to comply with regulations of
the FDA.
Page 9 of 23
Our last filing of Form 510(k) with the FDA was for the Restore (R), approved in
1998.
We are required to comply with federal, state and local environmental laws;
however, there is no significant effect of compliance on capital expenditures,
earnings or competitive position. We do not use significant amounts of hazardous
materials in the assembly of these products.
Periodically we are subject to inspections and audits by FDA inspectors. During
the year ended February 28, 2006, we were subject to a routine QSR review by the
FDA. The FDA inspection did not find any violations and no DD483 was issued. As
a result of FDA audits, the Company is always subject to further audits and
could be impacted by adverse findings.
PATENTS AND TRADEMARKS
We have filed and received U.S. protection for many of our products and in some
cases, where it was no longer deemed economically beneficial; we have allowed
certain patent protections to lapse. The RES-Q-VAC(R), an emergency medical
product, is susceptible in the international market to imitation. In 2002 a
competitor had introduced a competitive product to the RES-Q-VAC(R) into the
market. We responded with the introduction of new innovative features for the
RES-Q-VAC(R) that enhanced the product and placed well above the competition in
safety.
On June 10, 2003, we received a patent #6,575,946 for our new Full Stop
Protection(R). This addition to the RES-Q-VAC(R) system prevents any fluids from
exiting the system. It also serves to trap airborne and fluid pathogens. We
believe that the addition of the flow block design substantially separates the
RES-Q-VAC(R) from competitive units, which tend to leak fluid when becoming full
or could pass airborne pathogens during use. There is a heightened concern from
health care professionals concerning exposure to disease and the new
RES-Q-VAC(R) provides improved protection for these users.
OSHA 29CFR 1910.1030 - Occupational Exposure to Blood borne 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 blood borne 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(R) for RES-Q-VAC(R)
The Company has received a letter from OSHA indicating the RES-Q-VAC(R) 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(R)
with Full Stop Protection(R) is the only portable device to comply with the CDC
directives.
On August 9, 2005, a patent was issued for a new mechanical variable flow rate
controller. Used with our FREEDOM60(R) Syringe Infusion System, this device
enables the user to select from a number of flow rates while using just one set
of tubing, allowing flow rates to be changed during the course of a single
infusion to better meet the needs of the patient. The device may be applied to
other infusion systems as well. We have not yet determined a production or
marketing strategy for this product.
We also hold patent #5,336,189 for a "Combination IV Pump & Disposable Syringe"
which confers a unique syringe to IV pump interface design. This patent is for
the FREEDOM60(R) Infusion System, an infusion therapy product. The cost of
filing and maintaining applications has deterred pursuing international patents.
The patent position of small companies is highly uncertain and involves complex
legal and factual questions. Consequently, there can be no assurance that patent
applications relating to products or technology will result in patents being
granted or that, if issued, the patents will afford protection against
competitors with similar technology. Furthermore, some patent licenses held may
be terminated upon the occurrence of certain events or become non-exclusive
after a specified period. There can be no assurance that we will have the
financial resources necessary to enforce any patent rights we may hold.
Page 10 of 23
Our product names are registered trademarks. There can be no assurance that
patents or trademarks will provide competitive advantages for the products
covered or that they will not be challenged or circumvented by competitors.
In the third quarter of the 2005 fiscal year, it was 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(R), using the RES-Q-VAC(R)
name. We are pleased to announce that the distributor eventually agreed to
discontinue use of the RES-Q-VAC(R) name, destroy its existing inventory of the
copied pumps and to refrain from selling the copied pumps in the future.
To strengthen our position in the future, we applied for, and were granted,
trademark status for the RES-Q-VAC(R) name in Germany. An application to
register the name throughout the entire European Union has been filed and is
undergoing review.
We have filed a provisional patent application for our new LED RES-Q-VAC system
on April 23, 2007. We are also filing a provisional patent for a newly designed
needle set to be used with the Freedom60.
ITEM 2. DESCRIPTION OF PROPERTY
We currently rent a masonry and steel frame building erected on 3.27 acres of
land located at 24 Carpenter Road, Chester, New York 10918. This facility is our
only location and is used as our headquarters and manufacturing operations.
Currently we have a 20-year lease and are responsible for all repairs,
maintenance and upkeep of the space occupied. The terms of the lease call for
monthly lease payments of $10,000 per month for the first 10 years of the lease
term and increasing to $11,042 thereafter, we also contribute payments of 65% of
the building's annual property taxes, amounting to $63,304 for the year ended
February 29, 2008.
ITEM 3. LEGAL PROCEEDINGS
We are, from time to time, subject to claims and suits arising in the ordinary
course of business, including claims for damages for personal injuries, breach
of management contracts and employment related claims.
One of our sales employees who reigned in 2006 has undertaken a lawsuit which he
claims is for commissions earned. Based on the actual sales performance during
that time period, we believed this lawsuit was without merit. We agreed to
mediation to settle this matter. As a result of this mediation the company
agreed to settle with this former employee to avoid additional legal expenses.
This settlement is in the amount of $30,000 payable over 20 months and has been
recorded in our financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fiscal year
ended February 29, 2008.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
We are authorized to issue 50,000,000 shares of Common Stock, $.01 par value. As
of February 29, 2008, 34,829,286 shares were issued and outstanding and there
were approximately 1,076 holders of record.
Our Common Stock is traded in the over-the-counter market and is quoted through
the National Daily Quotation Service. The following table sets forth the high
and low closing bid quotations for the Common Stock as reported by Commodity
Systems, Inc. for the periods indicated. These quotations do not include retail
mark-up, markdown or commission and may not represent actual transactions.
Page 11 of 23
HIGH LOW
------ ------
2008 QUARTER ENDED
February 29, 2008 $ 0.19 $ 0.07
November 30, 2007 $ 0.23 $ 0.09
August 31, 2007 $ 0.14 $ 0.05
May 31, 2007 $ 0.08 $ 0.04
2007 QUARTER ENDED
February 28, 2007 $ 0.18 $ 0.09
November 30, 2006 $ 0.25 $ 0.08
August 31, 2006 $ 0.15 $ 0.07
May 31, 2006 $ 0.23 $ 0.09
On February 2, 1993 we issued 10,000 shares of 8% Cumulative Convertible
Preferred Stock in a private placement for $100,000. We are obligated to pay
semi-annual dividend payments of $4,000 until conversion by shareholders or
redemption by us. The 10,000 shares of Cumulative Convertible Preferred Stock
are convertible to 238,095 shares of Repro-Med common stock at $0.40 per share.
The 10,000 shares of Cumulative Convertible Preferred Stock are convertible
based on the following formula: multiply the number of shares of Preferred Stock
to be converted by $10.00, divide the result by the conversion price of $0.20
per share (or by the conversion price as last adjusted and in effect at the date
any shares are surrendered for conversion). The Conversion Price shall increase
by $.02 for each year that the Preferred Stock is outstanding. The current
conversion price is $0.50
We have not declared or paid any cash dividends on our Common Stock and do not
anticipate that any dividends will be paid in the foreseeable future. During the
fiscal year ended February 29, 2008, dividends on the Convertible Preferred
Stock were accrued in the amount of $8,000 on the balance sheet.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report on Form 10-KSB 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, expanding the market of FREEDOM60(R), 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.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to be
cash equivalents.
INVENTORY
Inventories consist of purchased parts and assembled units and are
stated at the lower of average cost or market value. Average cost is calculated
using a rolling average based upon new purchases and quantities.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Important estimates include but are not limited to, asset lives,
valuation allowances, inventory and accruals.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
In determining the allowance for doubtful accounts the Company analyzes the
aging of accounts receivable, historical bad debts, customer creditworthiness
and current economic trends.
REVENUE RECOGNITION
In accordance with Securities and Exchange Commission's (SEC's), Staff
Accounting Bulletin No. 104, sales of manufactured products are recorded when
shipment occurs and title passes to a customer, persuasive evidence of an
arrangement exists with the customer, the sales price is fixed and determinable
and the collectibility of the sales price is reasonably assured. The Company's
revenue stream is derived from the sale of an assembled product. Other service
revenues are recorded as the service is performed. Shipping and handling costs
are generally billed to customers and are included in sales. The Company does
not accept return of goods shipped unless it is a Company error. The Company
does not grant sales allowances other than an occasional 1% discount for
payments made within 30 days. The only credits provided to customers are for
defective merchandise and sales incentives are occasional advertising in
customer catalogues.
STOCK-BASED COMPENSATION
The Company accounts for employee stock based compensation and stock issued for
services using the fair value method. In accordance with SFAS No. 123R, the
measurement date of shares issued for services is the date when the
counterparty's performance is complete.
The Company accounts for stock issued for services using the fair value method.
In accordance with the Emerging Issues Task Force ("EIFT") 96-18, the
measurement date of shares issued for service is the date when the
counterparty's performance is complete.
RESULTS OF OPERATIONS
2008 vs. 2007
Our net operating profit ending February 29, 2008 is $193,509 as compared to
last year which had a loss of $22,136, an overall increase of $215,645. The Net
Loss for the year ending February 29, 2008 was $2,499 which represents an
increase of $252,222 as compared to last year's net loss of $254,721. Our
operating profit
Page 12 of 23
was reduced in part due to stock based compensation of $129,968, which included
a stock grant to a member of our board of directors for $35,000 who has
personally helped secure a loan to allow us to payoff previous financing from a
group promissory note holders as of February 21, 2008, as compared with last
years stock based compensation of $174,710. During the current year we
refinanced our promissory loan which included stock based compensation with a
conventional loan at a lower interest rate.
Our total sales increase by $613,099 or 35.3% for the year ended February 29,
2008 to $ 2,347,678 from $1,734,579 in 2007. This increase was led by surge in
our Freedom60 product line which increased year over year by 95.2% to $1,312,235
from $672,252. The increase is due to additional sales for use with immune
globulin, antibiotics, and to a lesser extent, a price increase which was put
into effect towards the last month of this year. We have passed along increases
in the cost of our raw materials as they have occurred, but there can be no
assurance that we may be able to continue to pass along additional future
increases. The Freedom60 is gaining more traction in the market as word of our
performance and costs are communicated throughout the industry along with the
clarification by Medicare naming the Freedom60 as the only reimbursable pump for
Subcutaneous Immune Globulin. . These increases are expected to continue into
fiscal year 2009.
Although we committed most of our resources on the Freedom60, our RES-Q-VAC(R)
sales also increased by 6.7% to $ 829,329 from $777,226 in part due to the
introduction of a new configuration called UTRA and improved sales
internationally. We intend to continue to introduce the RES-Q-VAC to the
hospital markets, and further our emergency medical sales with the new RES-Q-VAC
ULTRA products. We also have begun a new limited marketing initiative for
RES-Q-VAC in the nursing home market, dental sales, sales to schools and
prisons, and sales to the government and military.
We continue to focus our sales and marketing efforts mainly on our two core
product lines, the FREEDOM60(R) Syringe Infusion System and the RES Q VAC(R)
Medical Suction System. This includes mail marketing, telemarketing, trade
shows, and increased on site sales calls.
Combined sales of all of our non-core product lines declined by 16.7% due partly
to the infrequent ordering patterns of some OEM customers. We do not actively
seek OEM business but will accept these contracts when appropriate.
Cost of goods sold increased to $899,978 for year ended February 29, 2008 as
compared to $663,507 for the previous year. Gross profit margin for the year
ended February 29, 2008 was about the same: 61.7%, as compared with 61.8% for
the previous year. Selling, General & Administrative Expenses (SG&A) increased
by $136,645 year over year from $993,415 to $1,130,060 due to additional
marketing expenses associated with our increase in sales, and a legal settlement
of $30,000 to a former employee. Stock based compensation decreased this year to
$129,968 from $174,710 in the year ended 2007 as noted above.
Cash interest expense Increased by $8,852 to $70,188 in 2008 from $61,336 in
2007.
We continue to seek funds to increase marketing and sales of both key products
and to design a new improved RES-Q-VAC(R) suction device to expand the market
substantially, although there is no assurance that such funding can be obtained,
or obtained at terms acceptable to us, or that if funded, the markets would
develop as expected. We are also beginning to promote the RES-Q-VAC(R) in the
home care market, for which the RES-Q-VAC(R) is ideally suited due to its low
cost, portability and convenience. We have begun marketing a dental version
called DENTAL-EVAC(R) and have added one distributor. We have signed an
agreement with a company to market RES-Q-VAC(R) and certain other of our
products in the veterinary markets.
LIQUIDITY AND CAPITAL RESOURCES
Our operating profit for the year ended February 29,2008 was $193,509. Our Net
loss was $2,499 which was included non-cash expenses for stock-based
compensation of $160,306, employee stock options of $30,338 and depreciation and
amortization of $64,189. For the year ended February 29, 2008 Net Cash provided
from Operations was $117,614 as compared with using ( $85,591) for the prior
year. This change of $203,205 was due primarily to increased sales of $613,099.
At the end of fiscal year 2008, the net working capital was ($50,754) due to the
Page 13 of 23
reclassification to a current liability of the promissory notes which required
stock based compensation to a conventional loan of $400,000.
In January of 2008 we were notified by The Trade Adjustment Assistance Program
of the Trade Department that our application for a grant of $150,000 was
approved for use to assist us with marketing, ISO and regulatory affairs, and
new product development. The grant matches the company on a 50-50 basis thereby
reducing our costs for these new programs in half. The Trade Adjustment
Assistance Program is a United States Government program to help manufacturing
firms adjust to foreign business competition. The program is authorized by the
Trade Act of 1974 and is administered by the U. S. Department of Commerce. The
program operates through Trade Adjustment Assistance Centers located across the
United States. The New York State area is served by the New York State Trade
Adjustment Assistance Center (NYS TAAC). The NYS TAAC is affiliated with the
Research Foundation of the State University of New York at Binghamton. Minimal
funds were used in the previous year however we have initiated these programs
now and intend to complete them by the end of our next fiscal year.
On October 11, 2006, in order to satisfy a line of credit and add additional
liquidity to the company one of the directors advanced the company $325,000.
This note is included in the long-term debt of the company. Together with simple
interest of 6% annum with interest due on April 30, 2009. In addition Warrants
were issued to acquire 150,000 shares of restricted common stock exercisable at
$.10 per share, the director exorcised 600,000 stock options at $.06 per share,
the proceeds were used to pay down the loan. On February 21, 2008 these warrants
were exercised and the proceeds from this issuance were used to pay down the
advance.
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 were fully satisfied by the end of February 2008 and
replaced with a straight loan secured with an interest rate set at prime on
February 21st, 2008 by a member of our board of directors.
Accounts Receivable, net of reserves, increased at February 29, 2008 to $297,206
as compared to $214,446 for the previous year as a result of our increased
sales. Domestic sales are made primarily on net 30-day payment terms. A variety
of terms continue to be employed for export sales including cash prepayments and
net 45 days to allow for increased delays due to transportation and
communications. As of February 29,2008, 88% of Accounts Receivable were current
or less than 30 days past due, 6% were at 30-60 days and 5% were over 61 days.
Prepaid expenses and other receivables Increased $34,082 from $10,310 to $44,392
as a result of advance payment for tradeshows that will be attended in March and
April of 2008 and advance payments of business and health insurance premiums
Expenditures for capital equipment in 2008 were $38,558 and patent costs were
$7,681 on filings for new products that initiated during the year.
Approximately ten years ago we agreed to rework approximately 13,000 units of a
product for an OEM customer order, which was to be completed in prior years. The
total additional material and labor cost to complete this rework approximates
$612,000 of which we have inventory for the same amount.
We currently rent a masonry and steel frame building erected on 3.27 acres of
land located at 24 Carpenter Road, Chester, New York 10918. This facility is our
only location and is used as our headquarters and manufacturing operations.
Currently we have a 20-year lease and are responsible for all repairs,
maintenance and upkeep of the space occupied. The terms of the lease call for
monthly lease payments of $10,000 per month for the first 10 years of the lease
term and increasing to $11,042 thereafter, we also contribute payments of 65% of
the building's annual property taxes, amounting to $63,304.19 for the year ended
February 29, 2008
We continue to seek funds to enhance our marketing efforts substantially and for
other corporate purposes, although there is no assurance that such funding can
be obtained, or obtained at terms acceptable to us. Substantial resources have
been directed into the marketing efforts during the past year which produced an
increase in new RES-Q-VAC(R) customers and new FREEDOM60(R) users. We are aware
of the delay between
Page 14 of 23
marketing and the resulting sales in our medical markets. Furthermore, new
customers tend to purchase smaller initial quantities, and since a major portion
of our income stream is derived from the use of disposable supplies, it may take
several months for the full impact of new customers to be reflected in our sales
performance.
We believe we are continuing to enhance a new customer base for our products. We
have experienced an increase in sales and cash flow during this past year. With
these increases and the capital we currently have, we will continue to meet or
exceed the company's financial goals. If the sales continue to increase at the
current rate, which we feel confident of but cannot assure, we believe we will
have sufficient resources to meet our financial obligations for the next twelve
months from our cash flow alone.
SUBSEQUENT EVENTS
None
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F 1
Balance Sheets F 2
Statements of Operations F 4
Statements of Cash Flows F 5
Statement of Stockholders' (Deficit) F 6
Notes to Financial Statements F 7
Page 15 of 23
MEYLER & COMPANY, LLC
CERTIFIED PUBLIC ACCOUNTANTS
ONE ARIN PARK
1715 HIGHWAY 35
MIDDLETOWN, NJ 07748
Report of Independent Registered Public Accounting Firm
To the Board of Directors of
Repro-Med Systems, Inc.
Chester, NY
We have audited the accompanying balance sheets of Repro-Med Systems, Inc. as of
February 29, 2008 and February 28, 2007 and the related statements of
operations, stockholders deficit and cash flows for each of the years then
ended. Repro-Med Systems, Inc.'s management is responsible for these financial
statements. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Repro-Med Systems, Inc. as of
February 29, 2008 and February 28, 2007 and the results of its operations and
its cash flows for each of the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Meyler & Company, LLC
June 12, 2008
Middletown, NJ
F 1
REPRO-MED SYSTEMS, INC.
BALANCE SHEETS
FEBRUARY 29, FEBRUARY 28,
2008 2007
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 95,561 $ 99,421
Accounts Receivable less allowance for doubtful accounts of $26,115 and
$21,950 for 2008 and 2007, respectively 297,206 214,446
Inventory 551,032 489,738
Prepaid Expenses 44,392 10,310
------------ ------------
Total Current Assets 988,191 813,915
PROPERTY & EQUIPMENT, less accumulated depreciation of $1,126,612 and $1,066,329
for 2008 and 2007, respectively 235,677 220,515
OTHER ASSETS:
Patents, net of accumulated amortization of $82,590 and $78,675 for 2008
and 2007, respectively 44,354 40,588
Goodwill 8,609 8,609
Security Deposit 28,156 54,802
------------ ------------
Total Other Assets 81,119 103,999
------------ ------------
TOTAL ASSETS $ 1,304,987 $ 1,138,429
============ ============
The accompanying notes are an integral part of these financial statements.
F 2
REPRO-MED SYSTEMS, INC.
BALANCE SHEETS (CONTINUED)
FEBRUARY 29, FEBRUARY 28,
2008 2007
------------ ------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Note payable to financial institution $ 400,000 $ --
Note payable - current portion 19,293 --
Notes payable to related parties - current portion -- 71,274
Deferred capital gain - current portion 22,481 22,481
Accounts payable 342,433 443,440
Accrued expenses 53,180 46,179
Accrued interest 63,590 44,565
Current portion of capital lease obligations -- 617
Accrued preferred stock dividends 52,000 44,000
Accrued payroll and related taxes 18,594 9,408
Warranty liability 62,194 --
Customer deposits 5,180 --
------------ ------------
Total Current Liabilities 1,038,945 681,964
OTHER LIABILITIES
Note payable - less current portion 32,250 --
Notes payable to related parties - less current portion 394,000 855,000
Deferred capital gain less current portion 224,815 247,295
------------ ------------
Total Other Liabilities 651,065 1,102,295
------------ ------------
Total Liabilities 1,690,010 1,784,259
STOCKHOLDERS' DEFICIT
Preferred Stock, 8% cumulative, liquidation value $100,000, $0.01 par value,
2,000,000 shares authorized, 10,000 shares issued and outstanding 100 100
Common Stock, $0.01 par value, 50,000,000 shares authorized, 34,829,286 and
31,033,286 issued and outstanding February 29, 2008 and February 28, 2007,
respectively 348,293 310,333
Additional paid-in Capital 2,846,094 2,612,748
Accumulated deficit (3,437,510) (3,427,011)
------------ ------------
(243,023) (503,830)
Less: Treasury Stock, 2,275,000 shares at cost at February 29, 2008 and
February 28, 2007, respectively (142,000) (142,000)
------------ ------------
Total Stockholders' Deficit (385,023) (645,830)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 1,304,987 $ 1,138,429
============ ============
The accompanying notes are an integral part of these financial statements.
F 3
REPRO-MED SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
2008 2007
------------ ------------
NET SALES $ 2,347,678 $ 1,734,579
Costs and Expenses
Cost of goods sold 899,978 663,507
Selling, general and administrative 1,130,060 993,415
Research and development 59,932 42,033
Depreciation and amortization 64,199 57,760
------------ ------------
Total Costs and Expenses 2,154,169 1,756,715
------------ ------------
Net Operating Profit (Loss) 193,509 (22,136)
Other Income/(Expenses)
Interest expense (200,156) (236,046)
Interest and other income 4,148 3,461
------------ ------------
Total other Income/(Expenses) (196,008) (232,585)
LOSS BEFORE PROVISION FOR INCOME TAXES (2,499) (254,721)
Provision for Income Taxes -- --
------------ ------------
NET LOSS (2,499) (254,721)
Preferred stock dividends 8,000 8,000
------------ ------------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS' $ (10,499) $ (262,721)
============ ============
NET LOSS PER COMMON SHARE AVAILABLE TO COMMON STOCKHOLDERS' $ (0.01) $ (0.01)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 32,677,223 29,872,541
============ ============
The accompanying notes are an integral part of these financial statements.
F 4
REPRO-MED SYSTEMS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
2008 2007
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (2,499) $ (254,721)
Adjustments to reconcile net loss to net cash from operating activities:
Stock based Compensation 30,338 174,710
Interest expense paid with common stock and options 129,968 --
Amortization of prepaid consulting 4,000 2,666
Depreciation and amortization 64,198 57,760
Deferred capital gain - building lease (22,480) (22,481)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (82,760) (66,867)
(Increase) decrease in inventory (61,294) (142,346)
(Increase) decrease in prepaid expenses (38,082) 27,206
Increase (decrease) in accounts payable (41,007) 136,195
Increase (decrease) in accrued payroll and related taxes 9,186 (7,622)
Increase (decrease) in accrued expenses 7,001 7
Increase (decrease) in accrued preferred stock dividends 8,000 8,000
Increase (decrease) in warranty liability 62,194 --
Increase (decrease) in customer deposits 5,180 --
Increase (decrease) in security deposits 26,646 --
Increase (decrease) in accrued interest 19,025 1,902
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 117,614 (85,591)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment (38,558) (12,777)
Payments for patents (7,681) (2,415)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (46,239) (15,192)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable to bank on Demand -- (198,553)
Proceeds from note payable to financial institution 400,000 --
Payments on note payable (344) --
Proceeds from note payable to related parties -- 389,440
Payments on notes payable to related parties (486,274)
Payments on capitalized lease obligations (617) (9,436)
Preferred stock dividends (8,000) (8,000)
------------ ------------
NET CASH PROVIDED (USED IN) PROVIDED BY FINANCING ACTIVITIES (75,235) 173,451
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,860) 72,668
CASH BEGINNING OF YEAR 99,421 26,753
------------ ------------
CASH END OF YEAR $ 95,561 $ 99,421
============ ============
Supplemental Information
Cash paid during the year for:
Interest $ -- 68,868
Non-Cash activities
Issuance of 200,000 shares of common stock for consulting contract -- 12,000
Purchase of equipment with a note payable 36,887 --
Exercise of warrants and options as payment on note payable to individual 51,000 --
Issuance of common stock to settle accounts payable 60,000 --
The accompanying notes are an integral part of these financial statements.
F 5
REPRO-MED SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
For the Years Ended February 29, 2008 and February 28 2007
PREFERRED STOCK COMMON STOCK
--------------- --------------------- PAID-IN ACCUMULATED TREASURY
Shares Amount Shares Amount CAPITAL DEFICIT STOCK TOTAL
------ ------ ---------- --------- ----------- ------------ ---------- ----------
BALANCE, FEBRUARY 28, 2006 10,000 $ 100 29,012,286 $ 290,123 $ 2,446,248 $ (3,164,290) $ (142,000) $ (569,819)
Preferred stock dividends (8,000) (8,000)
Issuance of common Stock in connection
with obtaining loan financing at
$0.06 to $0.11 per Share 1,617,000 16,170 139,700 155,870
Issuance of common stock to consultants
consultants at $0.06 to $0.11 per share 204,000 2,040 16,800 18,840
Issuance of common stock to consultants
consultants at $0.06 per share 200,000 2,000 10,000 12,000
Net loss for the year ended February
28, 2007 (254,721) (254,721)
------ ------ ---------- --------- ----------- ------------ ---------- ----------
BALANCE, FEBRUARY 28, 2007 10,000 100 31,033,286 310,333 2,612,748 (3,427,011) (142,000) (645,830)
Preferred stock dividends (8,000) (8,000)
Issuance of common stock in connection
with obtaining loan financing at
$0.04 per Share 1,592,000 15,920 55,260 71,180
Fair value of stock options issued and
exercisable 45,966 45,966
Issuance of common stock to
consultants at $0.04 per share 204,000 2,040 6,120 8,160
Exercise of 600,000 employee stock
options at $.06 600,000 6,000 30,000 36,000
Exercise of 150,000 shares from
warrants at $.10 150,000 1,500 13,500 15,000
Issuance of common stock for guarantee
of loan at $.05 per share 500,000 5,000 30,000 35,000
Issuance of common stock for settlement
of legal fees at $.08 per share 750,000 7,500 52,500 60,000
Net loss for year ended February
29, 2008 (2,499) (2,499)
------ ------ ---------- --------- ----------- ------------ ---------- ----------
BALANCE, FEBRUARY 29, 2008 10,000 $ 100 34,829,286 $ 348,293 $ 2,846,094 $ (3,437,510) $ (142,000) $ (385,023)
====== ====== ========== ========= =========== ============ ========== ==========
The accompanying notes are an integral part of these financial statements.
F 6
REPRO-MED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2008 and February 28, 2007
NOTE 1 DESCRIPTION OF BUSINESS, GOING CONCERN UNCERTAINTY AND MANAGEMENT'S
PLANS
THE COMPANY AND NATURE OF BUSINESS
Repro-Med Systems, Inc. (the "Company") was incorporated on March 24,
1980 under the laws of the State of New York. The Company was organized
to engage in research, development, laboratory and clinical testing,
production and marketing of medical devices used in the treatment of
the human condition.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or
less to be cash equivalents.
INVENTORY
Inventories consist of purchased parts and assembled units and are
stated at the lower of average cost or market value. Average cost is
calculated using a rolling average based upon new purchases and
quantities.
PATENTS
Costs incurred in obtaining patents have been capitalized and are being
amortized over seventeen years.
INCOME TAXES
The Company accounts for income taxes under the liability method, which
requires the determination of deferred tax assets and liabilities based
on the differences between the financial and tax bases of assets and
liabilities using enacted tax rates expected to be in effect for the
year in which differences are expected to reverse. Deferred tax assets
are adjusted by a valuation allowance since, based on available
evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
At February 28, 2008, the Company has net operating loss carry forwards
of approximately $3,200,000, which expire through 2027. Since the
Company has generated significant operating losses, a deferred tax
asset of approximately $962,000 has been offset by a valuation
allowance of 962,000.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the respective
assets. Routine maintenance, repairs and replacement costs are expensed
as incurred and improvements that extend the useful life of the assets
are capitalized. When property and equipment are sold or otherwise
disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and any resulting gain or loss is
recognized in operations.
F 7
REPRO-MED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2008 and February 28, 2007
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER COMMON SHARE
The Company computes per share amounts in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share".
SFAS No. 128 requires the presentation of primary and fully diluted
earnings per share ("EPS") and requires presentation of basic and
diluted EPS. Basic EPS is computed by dividing the income (loss)
available to Common Stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS is based on the
weighted-average number of shares of Common Stock and Common stock
equivalents outstanding during the periods. Common stock equivalents
have been excluded from the weighted average shares outstanding
calculation, as inclusion would be anti-dilutive. The diluted earnings
per share calculation includes the addition of $8,000 from preferred
stock dividends, resulting in no difference between basic and diluted
earnings per share.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles ("GAAP") requires management
to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates. Important estimates include
but are not limited to, asset lives, valuation allowances, inventory
and accruals.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
In determining the allowance for doubtful accounts the Company analyzes
the aging of accounts receivable, historical bad debts, customer
creditworthiness and current economic trends.
REVENUE RECOGNITION
In accordance with Securities and Exchange Commission's (SEC's), Staff
Accounting Bulletin No. 104, sales of manufactured products are
recorded when shipment occurs and title passes to a customer,
persuasive evidence of an arrangement exists with the customer, the
sales price is fixed and determinable and the collectibility of the
sales price is reasonably assured. The Company's revenue stream is
derived from the sale of an assembled product. Other service revenues
are recorded as the service is performed. Shipping and handling costs
are generally billed to customers and are included in sales. The
Company does not accept return of goods shipped unless it is a Company
error. The Company does not grant sales allowances other than an
occasional 1% discount for payments made within 30 days. The only
credits provided to customers are for defective merchandise and sales
incentives are occasional advertising in customer catalogues.
STOCK-BASED COMPENSATION
The Company accounts for employee stock based compensation and stock
issued for services using the fair value method. In accordance with
SFAS No. 123R, the measurement date of shares issued for services is
the date when the counterparty's performance is complete.
The Company accounts for stock issued for services using the fair value
method. In accordance with the Emerging Issues Task Force ("EIFT")
96-18, the measurement date of shares issued for service is the date
when the counterparty's performance is complete.
F 8
REPRO-MED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2008 and February 28, 2007
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation 48, "Accounting for Income Tax Uncertainties" ("FIN
48"). FIN 48 defines the threshold for recognizing the benefits of tax
return positions in the financial statements as "more-likely-than-not"
to be sustained by the taxing authority. The recently issued literature
also provides guidance on the derecognition, measurement and
classification of income tax uncertainties, along with any related
interest and penalties. FIN 48 also includes guidance concerning
accounting for income tax uncertainties in interim periods and
increases the level of disclosures associated with any recorded income
tax uncertainties. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company adopted the provisions of FIN 48 on
January 1, 2007. The adoption of FIN 48 did not have a material impact
on the financial position or results of operations of the Company.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements," which defines fair value, establishes a framework for
measuring fair value under other accounting pronouncements that permit
or require fair value measurements, changes the methods used to measure
fair value and expands disclosures about fair value measurements. In
particular, disclosures are required to provide information on the
extent to which fair value is used to measure assets and liabilities;
the inputs used to develop measurements; and the effect of certain of
the measurements on earnings (or changes in net assets). SFAS No. 157
is effective for fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. Early adoption, as of the
beginning of an entity's fiscal year, is also permitted, provided
interim financial statements have not yet been issued. The Company
expects to adopt the provisions of SFAS No. 157 and is currently
evaluating the potential impact, if any, that the adoption of SFAS No.
157 will have on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, THE FAIR VALUE OPTION
FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES ("SFAS 159"). SFAS 159
allows entities to measure at fair value many financial instruments and
certain other assets and liabilities that are not otherwise required to
be measured at fair value. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. We have not determined what impact,
if any, that adoption will have on our results of operations, cash
flows or financial position.
In December 2007, the FASB issued SFAS No. 141R, BUSINESS COMBINATIONS.
This standard establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill acquired.
This statement also establishes disclosure requirements which will
enable users to evaluate the nature and financial effects of the
business combination. SFAS No.141R is effective for us for acquisitions
made after November 30, 2009. The Company is currently evaluating the
potential impact, if any, that the adoption of SFAS No. 141R will have
on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, NONCONTROLLING
INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS. This standard outlines
the accounting and reporting for ownership interest in a subsidiary
held by parties other than the parent. SFAS No. 160 is effective for
the first quarter of 2010. The Company is currently evaluating the
potential impact, if any, that the adoption of SFAS No. 160 will have
on its consolidated financial statements.
Reclassification
Certain amounts in the 2007 Financial Statements have been
reclassified to conform to the presentation used in the 2008 Financial
Statement.
F 9
REPRO-MED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2008 and February 28, 2007
NOTE 3 INVENTORY
Inventory is valued at the lower of average cost or market and consists
of the following at:
February 29 February 28
2008 2007
----------- -----------
Raw materials $ 426,587 $ 344,348
Work in progress 56,992 47,042
Finished goods 67,453 98,348
----------- -----------
$ 551,032 $ 489,738
=========== ===========
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
February 29 February 28 Estimated Useful
2008 2007 Lives
----------- ----------- ----------------
Furniture and office equipment $ 413,247 $ 346,482 5 years
Manufacturing equipment and tooling 949,042 940,362 7-12 years
----------- -----------
1,362,289 1,286,844
Less: accumulated amortization and
depreciation 1,126,612 1,066,329
----------- -----------
Property and Equipment, Net $ 235,677 $ 220,515
=========== ===========
NOTE 5 RELATED PARTY TRANSACTIONS
NOTES PAYABLE TO RELATED PARTIES
The President of the Company has advanced the Company $100,000 under a
demand loan which bears interest at the rate of 8% (see Note 8 -
Long-term debt). This note has been approved by the Board of Directors.
The President has agreed to extend the maturity date to March 30, 2009.
Additionally, during the year ended February 29, 2007, the President
made short term advances to the Company for working capital secured by
accounts receivable of the Company aggregating $69,274. These advances
were repaid during the fiscal year ending February 29, 2008. The
company also owes $2,000 to the former Controller of the Company.
LEASED AIRCRAFT
The Company leases an aircraft from a Company controlled by the
President. The lease payments aggregated $22,500 for the years ended
February 29, 2008 and February 28, 2007. The original lease agreement
has expired and the Company is currently on a month-to-month basis for
rental payments.
F 10
REPRO-MED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2008 and February 28, 2007
NOTE 6 NOTE PAYABLE TO FINANCIAL INSTITUTION
On February 21, 2008, the Company borrowed $400,000 from a financial
institution under a revolving loan agreement. The loan does not specify
a maturity date and is due on demand. The loan was personally
guaranteed by a director of the Company. The loan bears interest at the
rate of 4.75% per annum.
NOTE 7 CAPITAL LEASE OBLIGATIONS
The Company has obtained various pieces of equipment under capital
leases expiring through April 2007. The assets and liabilities under
these capital leases are recorded at the lower of the present values of
the minimum lease payments or the fair values of the assets. The assets
are included in property and equipment and are being depreciated over
their estimated useful lives.
As of February 28, 2007, minimum future lease payments under these
capital leases is $617.
February 28,
2007
------------
Total minimum lease payments $ 650
Less: amounts representing interest 35
------------
Net minimum lease payments 617
Less: current portion 617
------------
Long-term portion $ 0
============
NOTE 8 LONG-TERM DEBT
Long-term debt consists of the following at:
February 29 February
2008 2007
----------- --------
In April 2004, the Company borrowed $25,000 from three
individuals, including $10,000 from the President, at 2%
over the prime-lending rate. These loans mature June 30,
2008. As an additional incentive to make the loans, the
Company agreed to grant one share of its common stock for
each dollar of indebtedness outstanding at each calendar
quarter. During the year ended February 29, 2008, the
President was repaid the $10,000 $ 15,000 $ 25,000
During the period February 2004 to May 2005, the Company
borrowed $405,000 from several individuals. These loans
mature between March 30, 2009 and 2010 and bear interest at
a rate of 2% over the prime-lending rate. As incentive to
make the loans, the Company agreed to grant 4 shares of its
common stock immediately to each of the note holders and,
commencing on the yearly anniversary date, four shares of
common stock for each dollar of unpaid principal. The loans
were repaid on February 21, 2008. -- 405,000
The President of the Company has loaned the Company,
$100,000 at 8% interest. The loan is unsecured and matures
March 30, 2009. 100,000 100,000
F 11
REPRO-MED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2008 and February 28, 2007
NOTE 8 LONG-TERM DEBT (CONTINUED)
February 29 February
2008 2007
----------- --------
In October, 2006, the Company borrowed $325,000 from a
Director of the company, at 6% interest per annum. This
loan matures April 30, 2010. In addition to the interest
the holder is issued Warrants' to acquire 150,000 shares of
restricted common stock at $.10 per share. The Warrants
vest immediately. On February 21, 2008, the Director
exercised the warrants and stock options granted in June 2007
and, as consideration for the stock received, reduced the
loans outstanding. 294,000 325,000
In January 2008, the Company entered into an installment
loan arrangement to purchase a vehicle. The loan bears
interest at the rate of 6.735% and is payable in 84 monthly
installments of $552. The loan is secured by the vehicle.
36,543 --
----------- --------
445,543 530,000
Less current portion 19,293 --
----------- --------
Long-term portion $ 426,250 $530,000
=========== ========
In connection with the October 2006 borrowing of $325,000, the company
issued 150,000 warrants to acquire its common stock at $0.10 per share.
As a result of the company performing a Black-Scholes computation on
the value of the warrants, it concluded that the resultant value of
approximately $4,500 was not significant and accordingly, did not
reduce the value of the warrants from the note proceeds.
NOTE 9 STOCKHOLDERS' EQUITY
Between March and May 2006, the Company issued 1,617,000 shares of its
common stock in connection with obtaining loan financing at $0.06 to
$0.11 per share. (See Note 8 to Financial Statements.)
The company has several verbal agreements with consultants to assist in
general corporate matters. The consultants are paid 204,000 shares per
year. For the year ended February 28, 2007, the company had not yet
issued the shares. However the company has recorded the shares as
though they were issued in the accompanying financial statements at a
price ranging between $0.09 and $0.11 per share.
In July 2006 the company entered into a consulting agreement to assist
the company in various general corporate matters for a term of three
years. In connection with the agreement the company issued 200,000
shares of it common stock at $0.06 per share.
Between March and May 2007, the company issued 1,592,000 shares of its
common stock in connection with obtaining loan financing at $0.04 per
share. (See Note 8 to Financial Statements.)
Between March and May 2007, the Company issued 204,000 shares to
consultants at $0.04 per share.
F 12
REPRO-MED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2008 and February 28, 2007
NOTE 9 STOCKHOLDERS' EQUITY (CONTINUED)
On June 6, 2007, the Company issued 4,360,000 stock options at $0.06
per share which was equivalent to the market price at the date of
grant. Of the 4,360,000 options issued, 1,690,000 options vested
immediately and 890,000 options vested each year for the succeeding
three years. The fair value of the vested options aggregated $120,966
and $45,966 was recorded in the statement of operations. The balance of
$75,000 will be amortized over the next three years.
On February 20, 2008, 600,000 stock options at an exercise price of
$0.06 per share were exercised by a director. The consideration for the
option was considered a reduction of a Company Note payable to the
director.
On February 20, 2008, 150,000 warrants at an exercise price of $0.10
per share were exercised by a director. The consideration for the
warrants was considered a reduction of a Company Note payable to the
director.
On February 21, 2008, the Company issued 500,000 shares of the Company
common stock to a Director for guaranteeing a loan from a financial
institute aggregating $400,000. The stock was valued at $0.07 per
share.
On February 28, 2008, the Company issued 750,000 shares of its common
stock at $0.08 per share in settlement of $60,000 of legal obligation.
The charge was a reduction of accounts payable.
All of the qualified and non-qualified options existing under the
company's qualified and non-qualified options plans have expired at
February 28, 2007.
NOTE 10 STOCK OPTIONS
On June 6, 2007, the Board of Directors approved the issuance of
4,360,000 stock options to key employees and directors of the Company.
The options have an expiration date of 5 years from the date of grant
and an exercise price of $0.06 per share. Of the 4,360,000 stock
options granted, 1,690,000 vested immediately and 890,000 stock options
vest each succeeding year for three consecutive years.
The following table summarizes the company's stock options:
Average Weighted Weighted
Options Exercise Exercise Average Average
Outstanding Price Price Life Exercise Price
----------- -------- -------- -------- --------------
Balance, February 28, 2007 -- -- -- -- --
Granted 4,360,000 $ 0.06 $ 0.06 3.0 $ 0.06
Exercised 600,000 0.06 0.06
Cancelled -- -- -- -- --
----------- -------- -------- -------- --------------
Balance, February 29, 2008 3,760,000 $ 0.06 $ 0.06 3.0 $ 0.06
=========== ======== ======== ======== ==============
The fair value of the option calculated using the Black-Scholes pricing
model aggregated $120,966. The amount recorded in the Statement of
Operations for the 1,690,000 options, which vested immediately, was
$45,966. The balance of the expense will be recorded in the succeeding
3 years at $25,000 per year.
F 13
REPRO-MED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 2008 and February 28, 2007
NOTE 10 STOCK OPTIONS (CONTINUED)
The fair value of the options was calculated using the following
factors and the Black-Scholes pricing model:
Risk free rate 2.4%
Volubility 96.16%
Expected life 1.5 years
Dividend yield 0%
NOTE 11 SALE-LEASEBACK TRANSACTION - OPERATING LEASE
On February 25, 1999, the Company entered into a sale-leaseback
arrangement whereby the Company sold its land and building at 24
Carpenter Road in Chester, New York and leased it back for a period of
20 years. The leaseback is accounted for as an operating lease. The
gain of $449,617 realized in this transaction has been deferred and is
amortized to income in proportion to rental expense over the term of
the related lease.
At February 29, 2008 minimum future rental payments are:
Year Minimum Rental Payments
---- -----------------------
2009 $ 120,000
2010 120,000
2011 120,000
2012 120,000
2013 120,000
thereafter 845,000
----------
$1,445,000
==========
Rent expense for the year ended February 29, 2008 aggregated $120,000.
NOTE 12 COMMITMENTS AND CONTINGENCIES
The Company is contingently liable to rework and fulfill a contractual
commitment of its product for a customer order. The total additional
material and labor cost to complete this work approximates $62,000. The
provision has been recorded in the Company's financial statements.
F 14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 8A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of our management, including our Chief Executive Officer, or CEO,
acting as Chief Financial Officer, or CFO, and the Chief Operating Officer, or
COO, of the effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) under the Exchange Act) as of February 29, 2008. Based on that
evaluation, our management, including our CEO/CFO and COO, concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and is accumulated and
communicated to our management, including our CEO/CFO and COO, to allow timely
decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There has been no change in our internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal year
ended February 29, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth-certain information with respect to the Executive
Officers and Directors:
Name Age Position/Held Since
---- --- -------------------
Andrew I. Sealfon 62 President 1980,
Treasurer 1983,
Chairman 1989,
Director 1980,
CEO 1986
Paul Mark Baker 57 Director 1991
Nathan Blumberg 73 Director 2000
Remo Spagnoli 78 Director 1993
Ronald Tortorella 56 Chief Operating Office 2001
Mr. Sealfon is deemed a "parent" and "promoter" as those terms are defined under
the Securities Act of 1933 as amended.
All directors hold office until the next annual meeting of shareholders or until
there successors are elected. Executive Officers hold officer at the discretion
of the Board of Directors.
Mr. Sealfon co-founded Repro-Med Systems, Inc. in 1980. He is an electrical
engineer and inventor and has been granted numerous United States patents. Mr.
Sealfon is a graduate of Lafayette College.
Dr. Baker earned a medical degree from Cornell University Medical College. He is
a practicing
Page 16 of 23
pediatrician and is attending at Department of Pediatrics Horton Memorial
Hospital, Middletown, NY and attending at New York Hospital-Cornell Medical
Center in New York City. Dr. Baker assisted us in the development of the
RES-Q-VAC(R) Suction System. In addition, Dr. Baker has published results of use
of the RES-Q-VAC(R) in a letter to LANCET, a medical journal.
Dr. Blumberg was a practicing urologist in the New York area, and has founded
and sold an IV business to 3M. He teaches medicine at Stony Brook University on
Long Island, and now consults for various medical companies. He makes available
a wealth of medical and business acumen to the Company.
Mr. Spagnoli is a principal founder and past President and Chairman of CRS,
Inc., Newburgh, NY, a manufacturer of proprietary inventory control and point of
sale software and distributor of computer equipment. Mr. Spagnoli presently
consults for CRS, Inc.
Page 17 of 23
ITEM 10. EXECUTIVE COMPENSATION
Andrew I. Sealfon, President, received $116,757 in salary from Repro-Med during
the fiscal year ended February 29, 2008. Mr. Sealfon had been granted incentive
stock options, which were issued on June 6, 2007, in Repro-Med under its Stock
Option Agreement.
The officers are reimbursed for travel and other expenses incurred on behalf of
Repro-Med Systems, Inc. We do not have pension or profit sharing plans.
Summary Compensation
--------------------
Name & Position Year Salary Other *
--------------- ---- ------ -----
Andrew I. Sealfon, 2007 $116,757 --
President 2006 $112,266 --
2005 $119,750 --
* Other compensation includes car allowance (not itemized here).
Table of aggregated options exercised in the fiscal year and option values at
year-end February 2008:
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options
Acquired Year-end at Year-end
On Value Exercisable / Exercisable/
Name of Individual Exercise Realized Unexercisable Unexercisable
- ------------------ -------- -------- ------------- -------------
A. I. SEALFON
Exercisable 0 0 500,000 $0
Unexercisable 0 0 0 $0
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 2006, the number of shares of
Common Stock beneficially owned by each person owning more than 5% of the
outstanding shares, by each officer and director, and by all officers and
directors as a group:
Name of Principal Shareholders Number of Percent
and Identity of Group Shares Owned Of Class Notes:
------------------------------ ------------ -------- -----
Andrew I. Sealfon* 5,367,250 20% 1,2,6
Dr. Paul Mark Baker 1,034,000 4% 6
Dr. Nathan Blumberg 260,000 1% 5,6
Remo Spagnoli 1,234,045 6% 3,4,6
Page 18 of 23
* Andrew I. Sealfon is deemed a "parent" and a "promoter" of Repro-Med Systems,
Inc. as those terms are defined under the Securities Act of 1933, as amended.
(1) Does not include 690,000 shares of common stock owned by members of Mr.
Sealfon's family, as to which Mr. Sealfon disclaims beneficial ownership.
(2) Includes 477,000 shares of Common Stock owned by six members of Mr.
Spagnoli's family.
(3) Mr. Spagnoli directly owns 10,000 shares of Repro-Med Convertible 8%
Preferred Stock. For fiscal 2005, $8,000 in preferred stock dividends has been
accrued on the balance sheet. The preferred stock can be redeemed for 238,095
shares of Repro-Med common stock at $0.42 per share. Consequently, 238,095
shares are deemed beneficially owned by Mr. Spagnoli and included above.
(4) Dr. Blumberg was issued 50,000 shares through an agreement between Princeton
Research and Repro-Med Systems, Inc., which called for a total issue of 230,000
shares of stock in exchange for services rendered.
(5) On March 1, 1995, the Board of Directors approved two incentive stock option
programs for the benefit of key employees, directors, and officers of Repro-Med
Systems, Inc. The two plans, termed the 1995 Stock Option Plan and the 1995
Stock Option Plan For Non-Employee Directors (the "Option Plans"), provide
options to purchase 5,000,000 and 500,000 shares, respectively, of Repro-Med
common stock. We have filed a Registration Statement with the Securities and
Exchange Commission for the Option Plans. The Option Plans expire March 1, 2005.
Options granted under the 1995 Stock Option Plan to full time employees and are
intended as "incentive stock options" within the meaning of Section 422A of the
Internal Revenue Code. On March 1, 1995, the Board of Directors granted options
for 3,800,000 shares. On August 28, 1998 the option price was reduced from $.15
to $.06 per share. The option price of $.06 per share was not less than the fair
market value of the common stock on the date the price was reduced. The option
price of $.066 cents per share was not less than 110% of the fair market value
of the common stock on the date the price was reduced. Options for 100,000
shares are awarded to each Director upon signing on as a Director. Options for
30,000 shares were issued to Dr. Blumberg, Dr. Baker and Mr. Spagnoli for their
efforts during the fiscal year ended February 28, 2001.
(7) Treasury stock totaling 2,275,000 shares acquired by Repro-Med Systems, Inc.
at a cost of $142,000 was excluded from all percentage calculations.
No. Shares & Earliest Date of
Name Main Position Price Per Share Exercise
- ---- ------------- --------------- -----------------------------
Sealfon, A. President $0.066 1,500,000, 3/1/95*
Baker, M. Clinical Consultant $0.060 300,000, 3/1/95*
$0.250 30,000, 3/9/01*
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS:
Spagnoli, R. Director $0.060 20,000, 3/1/96*
20,000, 3/1/97*
20,000, 3/1/98*
20,000, 3/1/99*
20,000, 3/1/00*
$0.250 30,000, 5/9/01*
Blumberg N. Director $0.230 20,000, 8/1/01
20,000, 8/1/02
20,000, 8/1/03
20,000, 8/1/04
20,000, 8/1/05
$0.250 30,000, 5/9/01*
* These options expired February 28, 2005.
Page 19 of 23
The above calculations give effect to purchase of shares exercisable under the
terms of the Option Plans on these issued options by each officer and director,
and by all officers and directors as a group.
Certain shares and/or options which have been disclosed above were issued to
officers, directors, or 10% share holders. The Company has reminded each of said
directors to file an SEC Form 3 4, or 5 as applicable, with respect to such
stock issuances or option grants. The said Company's officers and directors have
not yet filed their SEC Forms 4 or 5 to reflect the shares or options that they
have received.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To reduce corporate travel expenses, we maintain and operate a corporate
aircraft. Since 1992, the aircraft has been leased from AMI Aviation, Inc. Mr.
Sealfon is a majority shareholder in AMI Aviation. The lease expenses paid were
$21,500 and $22,500 in each of 2007 and 2006. We believe the AMI lease is on
terms competitive with those that could be obtained from unaffiliated third
parties.
During fiscal year 2004, the Company borrowed $5,000 from AMI Aviation. This
loan is payable September 30, 2005, and bears an interest rate of 2% over prime.
During fiscal year 2004, the Company borrowed $6,000 from the President, Andrew
Sealfon, under a demand loan with an annual interest rate of 8%. The note has
been approved by the Board of Directors. The maturity of this loan has been
extended by Mr. Sealfon to March 30, 2009.
During fiscal year 2004, the Company borrowed $10,000 from Mr. Sealfon under
terms similar to the private note program. Interest is payable at 2% over the
prime rate plus one share of common stock per quarter for each dollar of
indebtedness. As of the date of this report, these shares have not been issued
to Mr. Sealfon. The loan matures June 30, 2008.
The President of the Company has loaned the Company, $100,000 at 8% interest.
The loan is unsecured and matures March 30, 2009.
In October 2006 the Company borrowed $325,000 from a Director of the company, at
6% interest per annum. This loan matures April 30, 2008. In addition to the
interest the holder is issued Warrants' to acquire 150,000 shares of restricted
common stock at $.10 per share. The Warrants vest immediately.
Page 20 of 23
ITEM 13. ACCOUNTANTS FEES AND SERVICES
The following is a summary of the fees billed to us by Meyler & Company, LLC,
our independent auditors, for professional services rendered for the fiscal
years ended February 28, 2008 and February 28, 2007:
FEE CATEGORY FISCAL 2008 FEES FISCAL 2007 FEES
Audit Fees (1) $38,000 $30,000
(1) Audit fees, including those for our wholly-owned subsidiary,
Repro-Med Europe, consist of aggregate fees billed for professional
services rendered for the audit of our annual financial statements
and review of the interim financial statements included in quarterly
reports or services that are normally provided by the independent
auditors in connection with statutory and regulatory filings or
engagements for the fiscal years ended February 28, 2008 and
February 28, 2007, respectively. All Other Fees consist of aggregate
fees billed for products and services provided by Meyler & Company,
LLC other than those disclosed above. These fees related to the
preparation of the 10Qs.
The Audit Committee is responsible for the appointment, compensation and
oversight of the work of the independent auditors and approves in advance any
services to be performed by the independent auditors, whether audit-related or
not. The Audit Committee reviews each proposed engagement to determine whether
the provision of services is compatible with maintaining the independence of the
independent auditors. All of the fees shown above were pre-approved by the Audit
Committee.
ITEM 14 INTERNAL CONTROLS
After an internal review of our internal control procedures, we determined that
we had certain deficiencies for which we have taken corrective action by
replacing a senior member of our accounting staff, and by seeking outside an
consulting relationship to provide management with additional oversight of
accounting operations.
Page 21 of 23
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
(3) Articles of Incorporation and By-Laws
3(a) - Articles of Incorporation (1)
3(b) - By-Laws (2)
(10) Material Contracts:
10(c) Voting Agreement for Repro-Med Systems, Inc.
Common Stock between Andrew I. Sealfon and Dr. Adrian
Zorgniotti (3)
10(e) 1995 Stock Option Plan (4)
10(f) 1995 Stock Option Plan for Non-Employee Directors (4)
(21) Subsidiary of Registrant:
NONE
(B) REPORTS ON FORM 8-K:
Form 8-K/A, Item 9, Regulation FD Disclosure, incorporated by reference for May
12, 2004.
- ----------
(1) Incorporated by reference from the Registration and Offering Statement of
Repro-Med Systems, Inc., dated November 12, 1982.
(2) Incorporated by reference from the Form 10-KSB Report of Repro-Med
Systems, Inc., dated February 28, 1987.
(3) Incorporated by reference from Form 10-KSB Report of Repro-Med Systems,
Inc., dated February 29, 1993.
(4) Incorporated by reference from Form 10-KSB Report of Repro-Med Systems,
Inc., dated February 28, 1995.
Page 22 of 23
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
Andrew I. Sealfon, President
Dated: June 13, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Andrew I. Sealfon June 13, 2008
- --------------------------
Andrew I. Sealfon, President, Treasurer, Chairman of the Board,
Director, and Chief Executive Officer, Chief Financial Officer
/s/ Dr. Nathan Blumberg June 13, 2008
- --------------------------
Dr. Nathan Blumberg, Director
/s/ Dr. Paul Mark Baker June 13, 2008
- --------------------------
Dr. Paul Mark Baker, Director
/s/ Remo Spagnoli June 13, 2008
- --------------------------
Remo Spagnoli, Director
Page 23 of 23