UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended FEBRUARY 28, 2007 ----------------- Commission File Number 0-12305 ------- REPRO-MED SYSTEMS, INC. ----------------------- (Exact name of registrant as specified in its charter) New York 13-3044880 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 24 Carpenter Road, Chester, NY 10918 ------------------------------ ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (845) 469-2042 -------------- 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 ------------------- ---------------- 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 28, 2007, the aggregate market value of the voting and nonvoting common equity held by non-affiliates of the registrant was $1,551,664. The number of issued outstanding of the registrant's common stock, $.01 par value was 31,033,286 at February 28, 2007, which includes 2,275,000 shares of Treasury Stock. Repro-Med Systems, Inc. Table of Contents Page ---- PART I Item 1. Description of Business ............................... 4 Item 2. Description of Property ............................... 11 Item 3. Legal Proceedings ..................................... 11 Item 4. Submission of Matters to a Vote of Security Holders ... 12 PART II Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters ................................... 12 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations ................... 13 Item 7. Financial Statements .................................. 17 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures .................. 30 Item 8A. Controls and Procedures ............................... 30 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance with Section 16(a) of the Exchange Act .......................................... 30 Item 10. Executive Compensation ................................ 31 Item 11. Security Ownership of Certain Beneficial Owners and Management ........................................ 31 Item 12. Certain Relationships and Related Transactions ........ 33 Item 13. Accountants Fees and Services ......................... 33 PART IV Item 14. Exhibits and Reports on Form 8-K ...................... 34 Signatures ................................................................ 35 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ...EX 31 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ...EX 32 2 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. 3 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. The Company is seeking outside funding to increase market penetration and to allow it to develop additional products into this market. 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(R) for Primary Immune Deficiency by injecting immune globulin (IgG) under the skin as a subcutaneous administration has seen increased usage over the past year. 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 an ideal system for this administration since the patient is able to self-medicate at home, the pump is easily configured for this application, and the FREEDOM60(R) is the lowest cost infusion system available in a heavily cost constrained market. Also due to its safe, limited and controlled pressure system, the Freedom60 adjusts automatically to the patient's needs providing a reliable and comfortable administration for these patients. The FREEDOM60(R) provides a high-quality delivery to the patient at costs similar to gravity and is targeted for the home health care industry, patient emergency transportation, and for any time a low-cost infusion is required. For the home care patient, FREEDOM60(R) is an easy-to-use lightweight mechanical pump using a 60cc syringe, completely portable, cost effective and maintenance free, with no batteries to replace and no cumbersome IV pole. For the infusion professional, FREEDOM60(R) delivers precise infusion rates and uniform flow profiles providing consistent transfer of medication. A Form 510(k) Premarket Notification for initial design of the FREEDOM60(R) as a Class II device was approved by the FDA in May 1994. The Company also designed and manufactured the FREEDOM60(R)-FM, an enhanced version of the FREEDOM60(R) which contains an electronic flow monitor system that provides occlusion and end of infusion alarm. This product is directed at nursing homes, hospitals and pediatric ambulatory applications where alarms are generally required for nursing acceptance. Nurses also appreciate being able to visualize the drug volume by reading the scale on the syringe. We have expanded the use of the FREEDOM60(R) to cover most antibiotics including the widely used and somewhat difficult to administer vancomycin. We have also found a following for FREEDOM60(R) for use in treating thalissemia with the drug desferal. In Europe we found success in using the FREEDOM60(R) for pain control, specifically post-operative epidural pain administration. Our European market also uses the FREEDOM60(R) for chemotherapy. 4 The FREEDOM60(R) for Primary Immune Deficiency by injecting immune globulin (IgG) under the skin as a subcutaneous administration has seen increased usage over the past year. 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 an ideal system for this administration since the patient is able to self-medicate at home, the pump is easily configured for this application, and the FREEDOM60(R) is the lowest cost infusion system available in a heavily cost constrained market. Also due to its safe, limited and controlled pressure system, the Freedom60 by adjusting automatically to the patient's needs provides a reliable and comfortable administration for these patients. Repro-Med Systems' objective is to build a product franchise with FREEDOM60(R) and the sale of patented disposable tubing sets. FREEDOM60(R) uses rate-controlled tubing with standard slide clamp and luer-lock connector on the patient end. Our patented syringe 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. THE MARKET FOR INFUSION PUMPS & DISPOSABLES The ambulatory market has been rapidly changing due to reimbursement issues. Insurance reimbursement has drastically reduced the market share of high-end electronic type delivery systems as well as high-cost disposable non-electric devices, providing an opportunity for the FREEDOM60(R). The Freedom60 was reclassified by the Centers for Medicare and Medicaid 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. We believe market pressures have moved patients to low-cost gravity system or IV push where the drug is pushed into the vein directly from a syringe. This is a low-cost option but has been associated with complications and considered by many to be a high-risk procedure. Thus, the overall trend has been towards syringe pumps due to the low-cost of disposables. FREEDOM60(R)-FM addresses the largest market segments with the lowest cost alarm syringe pump system. The chart below summarizes the market trends of various infusion devices. METHOD OF ADMINISTRATION MARKET TREND ------------------------ ------------ Ambulatory Pump Flat/Declining Gravity Infusion Increasing Pole Mounted Pump Declining Elastomeric Declining Syringe Increasing Implant Increasing ECONOMIC BENEFITS OF FREEDOM60(R) DISPOSABLE SALES We have sold approximately 5,370 pumps since March 2000. We sold approximately 1,301 pumps during the past fiscal year. 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 2,200 FREEDOM60(R) pumps currently in operation. The FREEDOM60(R) pump is designed for a minimum use of 4,000 cycles which at our list price is amortized at a low $.09 per use. The tubing sets currently have an average price of $4.25. We estimate that each pump uses an average of six sets per month. This monthly rate amounts to annual usage of 72 sets producing typical gross consumables revenues of $306.00 per pump. 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. 5 The following chart indicates estimates of potential consumable sales based on various factors and the installed base levels of FREEDOM60(R) pumps: Pumps In the Market Annual Sales of Disposables ------------------- --------------------------- 5000 $1,530,000 10000 3,060,000 50000 15,300,000 100000 30,600,000 Most of our current sales are made directly to health care providers, although we maintain distributors in both the domestic and foreign markets. COMPETITION FOR THE FREEDOM60(R) FREEDOM60(R) competes in the United States infusion pump market based on price, service and product performance. Some 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. 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 version of the RES-Q-VAC with the addition of a portable LED white light which attaches to the canister assembly. The light is fully malleable and can direct light during operations when lighting is poor or at night. We have begun marketing the new system with a national master distributor and will introduce the new product to the international community during the second quarter. 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 both prevents leakage and over-flow of the aspirated fluids, even at full capacity, and traps all air and fluid borne pathogens and potentially infectious materials within the sealable container. This protects users from potential exposure to disease and contamination. The Full Stop Protection(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 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. 6 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. We have also added new connectors to our pediatric catheters, which allow them to connect directly to the adult containers with FSP(R). These connectors allow 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 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 therefrom. 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 lightweight, 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. 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. 7 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 RES-Q-VAC(R), 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). OEM sales have been as high as 70% of sales (1996). In 2007 and 2006, contract manufacturing amounted to 9.90% and 5.6% of sales, respectively. 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. The table below presents the product mix for the last two fiscal years. 2007 2006 % OF SALES % OF SALES ---------- ---------- Infusion Therapy 39.33% 24.8% Medical Suction 44.99% 63.4% Gynecological Instruments 5.06% 5.8% Contract Manufacturing 9.90% 5.6% Other .72% 0.4% 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 pending additional funds becoming available through internal cash flow or outside financing. 8 SALES AND DISTRIBUTION Distribution channels for the products are those generally common to their respective markets. Emergency medical products are sold through a wide network of domestic and international distributors in 31 countries. Ambulatory infusion 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. Over the past year, we have begun upgrading 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 master distributors who are able to better support our products. We have consolidated our international RES-Q-VAC(R) distribution as well by creating a United Kingdom presence to focus solely on overseas distribution. We already have master distribution in 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. Our mailings to nursing homes have also resulted in some interest by respiratory centers, and we believe there may be additional sales opportunities in this market. 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 2007 we exhibited at the EMS Today Conference & Exposition in Baltimore. MANUFACTURING AND EMPLOYEES Electromechanical assembly, calibration, pre- and post-assembly quality control inspection and testing, and final packaging for all products are performed at the Company's facility and by the Company's employees. 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. In February 2007, we employed 17 employees, 10 were assigned to manufacturing operations, 2 to sales and customer support, 2 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 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. 9 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. 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, 2007, 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 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. 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. 10 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. 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. 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 $52,467 for the year ended February 28, 2007 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 believe this lawsuit is without merit. We have agreed to mediation at attempt to settle this matter. 11 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 28, 2007. 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 28, 2007, 31,033,286 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. High Bid Low Bid -------- ------- Year Ended February 28, 2007 ---------------------------- 1st Quarter ................ $0.25 $0.09 2nd Quarter ................ $0.19 $0.06 3rd Quarter ................ $0.09 $0.04 4th Quarter ................ $0.07 $0.05 Year Ended February 28, 2006 ---------------------------- 1st Quarter ................ $0.23 $0.09 2nd Quarter ................ $0.15 $0.07 3rd Quarter ................ $0.25 $0.08 4th Quarter ................ $0.18 $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 $0.48 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 28, 2007, dividends on the Convertible Preferred Stock were accrued in the amount of $8,000 on the balance sheet. 12 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, market acceptance 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. RESULTS OF OPERATIONS - --------------------- 2007 VS. 2006 We continue to focus our sales and marketing efforts on our two core product lines, the RES-Q-VAC(R) Medical Suction system and FREEDOM60(R) Syringe Infusion System. This included mail marketing, telemarketing, trade shows, and increased on site sales calls. Our Freedom60 increased 56.6% to $772,252 from $429,349 due to increased sales for use with immune globulin and antibiotics, and a price increase, which was put into effect during the year. The Freedom60 is gaining more traction in the market as word of our performance and costs are communicated throughout the industry. These increases are expected to continue into FY2008. RES-Q-VAC(R) sales decreased domestically by 31.2% from $550,274 to $378,421 due almost entirely to a one-time large order for the relief effort relating to Hurricane Katrina in the previous year which did not repeat. The loss without the Katrina order would have been 2% showing that we were able to offset the continuing decline in the EMS market with sales of the RES-Q-VAC in new markets. The international market declined by 29% from $561,794 to $398,805 due to foreign competition. Overall RES-Q-VAC(R) sales declined 30.1% from $1,112,068 to $777,226. Our new RES-Q-VAC(R) markets included hospitals, nursing homes, dental sales, sales to school and prisons. Sales of our non-core product lines declined by 14.5% due to our increased efforts going to the FREEDOM60(R) and RES-Q-VAC(R) product lines. Sales from OEM manufacturing (production for other manufacturers) increased by 72% and accounted for 9.90% of the company's revenue in 2007. We do not actively seek OEM business but will accept these contracts when appropriate. 13 Our total sales were essentially flat overall declining by 1.8% for the year ended February 28, 2007 to $1,727,518 from $1,759,566 in 2006 as we virtually made up the entire on-time Katrina order of $161,250 which did not repeat this year as mentioned above. Our net operating loss decreased to $22,137 this year as compared to $88,252 for the year ended February 28, 2006. The Net Loss for the year ended February 28, 2007, was $254,721, which includes $174,710 in stock-based compensation, as compared to the previous year's loss of $217,815 (which included stock-based compensation of $88,550.) Gross profit margin for the year ended February 28, 2007 was 62%, as compared with 58% experienced in the prior year ending February 28, 2006. Selling, General & Administrative Expenses (SG&A) increased slightly by $8,784 year over year from $984,631 to $993,415. Research and development expenses were essentially flat increasing by $216 from $41,817 to $42,033 in 2007. Interest expense decreased by $11,183 to $61,336 in 2007 from $77,519 in 2006 as the result of our paying off high interest on demand bank notes and capital leases. We continue to make an extensive effort to market our Freedom60 Syringe Infusion System for the delivery of immune globulin (IgG) using the subcutaneous route of administration. We have directly supported a clinical trial conducted by the manufacturer of an approved subcutaneous medication by supplying 42 of the trial centers with Freedom60 pumps and support. We have participated in several educational primers for nurses and web based training sessions. We have one customer in this market who represents 14% of our revenues and have trials underway with several other providers. 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 appears to 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, can 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. Reimbursement is one of the main driving forces in medicine. We recently challenged the current Freedom60 reimbursement for Medicare by requested a coding verification for the Freedom60 with the Centers for Medicare and Medicaid services (CMS). On May 21, 2007 CMS issued a formal notice that the Freedom60 was reclassified to E0779, which at the current time appears to increase the reimbursement for the Freedom60 some twenty fold. On the Medicare web site maintained by Palmetto GBA is stated the following for Subcutaneous Immune Globulin: "The DME pump and related supplies are also covered. Typically this involves a non-electric syringe pump (K0779). Code K0552 is used for the syringe and code A4221 is billed for the infusion sets and all other needed supplies. Only 1 unit of service of A4221 may be billed per week."(http://www.palmettogba.com/palmetto /providers_A.nsf/(Docs)/85256D57005BA23B85257170006A1FA7?OpenDocument) We appear to be the only Medicare approved device for this indication. For the RES-Q-VAC(R), we have introduced a new offering which consists of a patent pending, 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. We have selected a master distributor domestically (Moore Medical) and have begun a marketing program with them. 14 We continue our sales effort into the hospital and nursing homes working with a national distributor and by direct sales to penetrate this market. Due to power outages, hurricanes such as recently hit New Orleans 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. We recently conducted a focus group for RES-Q-VAC in the pediatric home tracheostomy market to introduce the RES-Q-VAC to this new home market. The results of the focus group non-electric suction is strongly need in the home care setting and parents of children with trachs and suction needs will consider a portable non-electric device for safety and ease of travel. From this focus group we have generated a clinical trial conducted in the home with children with trachs which, will continue for the next few months 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 Non-cash expenses for depreciation and amortization along with stock-based compensation offset a net loss of $254,721. For the year ended February 28, 2007 Net Cash from Operations was ($85,591) as compared with ($138,748) for the prior year. This change of $129,654 was due primarily to an increase in our accounts payable of $ 144,126. As a result, at the end of fiscal year 2007, the net working capital decrease to ($156,212). As of February 28, 2006, $198,553 had been advanced on the line of credit with M & T bank which was guaranteed by the President and one of the directors on October 11, 2006, one of the directors advanced the company $325,000 in order to satisfy this line and add additional liquidity to the company. This note is included in the long-term debt of the company. Together with simple interest of 6% annum are due on April 30, 2008. In addition Warrants were issued to acquire 150,000 shares of restricted common stock exercisable at $.10 per share In raising capital beginning in February 2004, the Company issued promissory notes in the total amount of $432,000. These five-year promissory notes pay 2% over prime plus four shares of common stock per year for every year the loan is in place. The loans are due on March 30, 2009. 15 Accounts Receivable, net of reserves, increased at February 28, 2007 to $206,076 as compared to $145,579 for the previous year. 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 28, 2007, 65% of Accounts Receivable were current or less than 30 days past due, 25% were at 30-60 days and 10% were over 60 days. Prepaid expenses and other receivables decreased $17,872 from $28,182 to $10,310. Expenditures for capital equipment and intellectual property protection in 2006 increased by $15,192 as compared to $9,251 2006. $11,915 contributed to molds and costs associated to filing and issuance of patents and trademarks. We are contingently liable to rework approximately 13,000 units of a product for an OEM customer order, which was completed in prior years. The total additional material and labor cost to complete this rework approximates $70,000, which has not been recorded in the financial statements. These units are deliverable over the next three years. An agreement with a marketing management company was terminated on November 11, 2006 for various reasons including the failure of this company to meet the minimum sales agreed goals. The management fees and rights to earn warrants' were based on this performance, which was not met, and therefore these fees are not earned and not owed. A note issued totaling $50,000 was therefore canceled. 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 $52,467 for the year ended February 28, 2007 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 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. With the current capital we have, and if sales continue to meet the Company's targets, which we expect but cannot assure, we believe that we will have sufficient resources to meet our obligations for the next twelve months. However, if these sales do not continue to develop to our expectations, and if new funding does not become available, then our viability could be in question (see going concern qualification NOTE 1 - Notes to Financial Statements). We remain cautiously optimistic that, at a minimum, these new sales will meet our expectations and needs for the coming year. 16 SUBSEQUENT EVENTS In order to receive more favorable Medicare reimbursement for our Freedom60 Syringe Infusion System, we had submitted a formal request for a HCPCS coding verification with the Statistical Analysis Durable Medical Equipment Regional Carrier (SADMERC). On May 21, 2007 we received a notification from CMS (Centers for Medicare & Medicaid Services) that the Freedom 60(R) had been re-reviewed for Medicare billing. It was the determination that the Medicare HCPCS code(s) to bill the four Durable Medical Regional Carries (DMERCs) should be: E0779 Ambulatory infusion pump, mechanical, reusable, for infusion 8 hours or greater. The new coding provides for a substantial increase in reimbursement for providers using an infusion pump for authorized users under Part B of Medicare. Current approved uses under Medicare include among others, subcutaneous immune globulin, antivirals, antifungals, and chemotherapeutics. ITEM 7. FINANCIAL STATEMENTS Index to Financial Statements ----------------------------- Report of Independent Registered Public Accounting Firm ................... 18 Balance Sheets ............................................................ 19 Statements of Operations .................................................. 20 Statement of Stockholders' (Deficit) ...................................... 21 Statements of Cash Flows .................................................. 22 Notes to Financial Statements ............................................. 23 17 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 28, 2007 and 2006 and the related statements of operations, stockholders deficit and cash flows for each of the two years in the period then ended. These financial statements are the responsibility of the Company's management. 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 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 28, 2007 and 2006 and the results of its operations and its cash flows for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the Financial Statements, the Company has an accumulated deficit of $3,427,011 and there are existing uncertain conditions the Company faces relative to its ability to obtain capital and operate successfully. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ Meyler & Company, LLC May 29, 2007 Middletown, NJ 18 REPRO-MED SYSTEMS, INC. BALANCE SHEETS
FEBRUARY 28, 2007 2006 ----------- ----------- ASSETS CURRENT ASSETS: Cash .......................................................... $ 99,421 $ 26,753 "project," "plan," "intend," "estimate," and "continue," and $21,950 and $27,632 for 2007 and 2006 respectively ........... 214,446 147,579 Inventory ..................................................... 489,738 347,392 Prepaid Expenses .............................................. 10,310 28,182 ----------- ----------- TOTAL CURRENT ASSETS ........................................ 813,915 549,906 PROPERTY & EQUIPMENT, less accumulated depreciation of $1,066,329 and $1,005,830 for 2007 and 2006 respectively ....... 220,515 268,096 OTHER ASSETS: Patents, net of accumulated amortization of $78,675 and $81,633 for 2007 and 2006, respectively .............................. 40,588 35,214 Goodwill, net of accumulated amortization of $5,528 and $5,168 for 2007 and 2006, respectively .............................. 8,609 8,969 Security Deposit .............................................. 54,802 54,802 ----------- ----------- TOTAL OTHER ASSETS .......................................... 103,999 98,985 ----------- ----------- TOTAL ASSETS .................................................... $ 1,138,429 $ 916,987 =========== =========== LIABILITIES AND STOCKHOLDERS' (DEFICIT) CURRENT LIABILITIES Note payable to bank - demand ................................. $ - $ 198,553 Notes payable to related parties .............................. 71,274 6,834 Accounts Payable .............................................. 443,440 307,245 Accrued Expenses .............................................. 46,179 46,172 Accrued Interest .............................................. 44,565 42,663 Current Portion of capital lease obligations .................. 617 9,437 Accrued Preferred stock dividends ............................. 44,000 36,000 Accrued payroll and related taxes ............................. 9,408 17,030 ----------- ----------- TOTAL CURRENT LIABILITIES ....................................... 659,483 663,934 OTHER LIABILITIES Capital lease obligations, less current ....................... - 616 Deferred capital gain ......................................... 269,776 292,256 Long-term debt - notes payable ................................ 855,000 530,000 ----------- ----------- TOTAL OTHER LIABILITIES ..................................... 1,124,776 822,872 ----------- ----------- TOTAL LIABILITIES ............................................... 1,784,259 1,486,806 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 2007 and 2006, respectively ........... 100 100 Common Stock, $0.01 par value, 50,000,000 shares authorized, 31,033,286 and 29,012,286 issued and outstanding at 2007 and 2006, respectively ....................................... 310,333 290,123 Additional paid-in Capital .................................... 2,612,748 2,446,248 Accumulated deficit ........................................... (3,427,011) (3,164,290) ----------- ----------- (503,830) (427,919) Less: Treasury Stock, 2,275,000 shares at cost at February 28, 2007 and 2006, respectively ................................... (142,000) (142,000) ----------- ----------- Total Stockholders' Deficit ................................... (645,830) (569,819) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ..................... $ 1,138,429 $ 916,371 =========== =========== The accompanying notes are an integral part of these financial statements. 19
REPRO-MED SYSTEMS, INC. STATEMENT OF OPERATIONS FOR THE YEARS ENDED FEBRUARY 28, 2007 2006 ------------ ------------ NET SALES ........................................ $ 1,734,579 $ 1,745,806 COST AND EXPENSE Cost of goods Sold ........................... 663,507 728,522 Selling, general and administrative .......... 993,415 984,631 Research and development ..................... 42,033 41,817 Depreciation and amortization ................ 57,760 79,089 ------------ ------------ TOTAL COSTS AND EXPENSES ....................... 1,756,715 1,834,059 NET OPERATING LOSS ............................. (22,136) (88,253) OTHER INCOME/(EXPENSES) Stock based compensation to obtain loan financing ................................... (174,710) (88,550) Interest Expense ............................. (61,336) (77,519) Interest and Other Income .................... 3,461 36,507 ------------ ------------ TOTAL OTHER INCOME/(EXPENSE) ..................... (232,585) (129,562) ------------ ------------ NET LOSS ......................................... $ (254,721) $ (217,815) ============ ============ NET LOSS PER COMMON SHARE (BASIC AND DILUTIVE) ... $ (0.01) $ (0.01) ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ....... 29,872,541 26,467,786 ============ ============ The accompanying notes are an integral part of these financial statements. 20 REPRO-MED SYSTEMS, INC. STATEMENT OF STOCKHOLDERS' DEFICIT For the Years Ended February 28, 2007 and 2007
Preferred Stock Common Stock --------------- --------------------- Paid-in Accumulated Treasury Shares Amount Shares Amount Capital Deficit Stock Total ------ ------ ---------- -------- ---------- ----------- --------- --------- Balance, February 28, 2005 10,000 $100 26,027,000 $260,270 $2,302,551 $(2,938,475) $(142,000) $(517,554) Issuance of common stock @ $0.07 per share ....... - - 1,214,286 12,143 72,857 - - 85,000 Issuance of common stock in connection with obtaining loan financing @$0.05 per share ........ - - 1,567,000 15,670 62,680 - - 78,350 Issuance of common stock to consultants @ $0.05 per share ............... - - 204,000 2,040 8,160 - - 10,200 Preferred stock dividends - - - - - (8,000) - (8,000) Net loss for the year ended February 28, 2006 . - - - - - (217,815) - (217,815) ------ ---- ---------- -------- ---------- ----------- --------- --------- 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 @$0.06 to $0.11per share - - 1,617,000 16,171 139,700 - - 155,870 Issuance of common stock to consultants @ $0.09 to $1.11 per share ...... - - 204,000 2,040 16,800 - - 18,840 Issuance of common stock to consultants @ $0.05 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) ====== ==== ========== ======== ========== =========== ========= ========= The accompanying notes are an integral part of these financial statements. 21
REPRO-MED SYSTEMS, INC STATEMENT OF CASH FLOWS FOR THE YEARS ENDED FEBRUARY 28, --------------------- 2007 2006 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Loss ............................................. $(254,721) $(217,815) Adjustments to reconcile net loss to net cash used in operating activities: Stock based Compensation to obtain loan financing 174,710 88,550 Amortization of prepaid consulting ............... 2,666 - Depreciation and amortization .................... 57,760 79,089 Deferred capital gain - building lease ........... (22,481) (22,481) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ....... (66,867) (22,501) (Increase) decrease in inventory ................. (142,346) 24,177 (Increase) decrease in prepaid expense ........... 27,206 8,349 Increase (decrease) in accounts payable .......... 136,195 (64,221) Increase (decrease) in preferred stock dividend .. 8,000 8,000 Increase (decrease) in accrued payroll and related taxes ................................... (7,622) (16,673) Increase (decrease) in accrued expense ........... 7 (14,416) Increase (decrease) in accrued interest .......... 1,902 11,194 --------- --------- NET CASH USED IN OPERATING ACTIVITIES .................. (85,591) (138,748) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ................... (12,777) (2,602) Additional patent costs .............................. (2,415) (6,649) --------- --------- NET CASH USED IN INVESTING ACTIVITIES .................. (15,192) (9,251) CASH FLOWS FROM FINANCING ACTIVITIES Notes payable ........................................ 325,000 80,000 Notes payable to bank on Demand ...................... (198,553) - Proceeds from sale of common stock ................... - 85,000 Preferred stock dividends ............................ (8,000) (8,000) Proceeds from note payable to related party .......... 64,440 (166) Payments on capitalized lease obligations ............ (9,436) (19,412) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES .............. 173,451 137,422 NET INCREASE,(DECREASE) IN CASH AND CASH EQUIVALENTS ... 72,668 (10,577) CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR ............ 26,753 37,330 --------- --------- CASH AND CASH EQUIVALENTS-END OF YEAR .................. $ 99,421 $ 26,753 ========= ========= Supplemental Information Cash paid during the year for: Interest ............................................. $ 68,868 $ 77,518 Non-Cash activities Issuance of 200,000 shares of common stock for onsulting contact ................................... $ 12,000 - The accompanying notes are an integral part of these financial statements. 22 REPRO-MED SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS February 28, 2007 and 2006 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. Going Concern Uncertainty and Management's Plans ------------------------------------------------ As shown in the accompanying financial statements, the Company incurred net losses of $254,721 and $217,815 during the years ended February 28, 2007 and 2006 respectively, and has an accumulated deficit of $3,427,011. The Company is seeking to raise additional working capital through debt or equity channels and is working with outside distributors to increase its market share in the European and U.S. markets for its products. However, even if the Company does raise capital through debt or equity channels or increases its sales through new strategies, there can be no assurance that the net proceeds of the capital raised or the revenue generated from the new marketing strategies will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company's ability to continue as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. 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 primarily of purchased parts and assembled units and are stated at the lower of cost FIFO (first-in, first-out) or market value. Patents ------- Costs incurred in obtaining patents have been capitalized and are being amortized over seventeen years. Costs of goodwill have been capitalized and are being amortized over thirty-five years. 23 REPRO-MED SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS Continued 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, 2007, the Company has net operating loss carry forwards of approximately $3,000,000, which expire through 2026. Since the Company has generated significant operating losses, a deferred tax asset of approximately $600,000 has been offset by a valuation allowance of $600,000. 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. 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. 24 REPRO-MED SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS Continued 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 principally 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. 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. Recent Accounting Pronouncements -------------------------------- In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109 ("FIN 48"), which clarifies the accounting and disclosure for uncertainty in tax positions. FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income tax uncertainties. We have not yet finally determined the impact that this interpretation will have on our results of operations or financial position. In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements ("SFAS 157"). SFAS No. 157 provides guidance for using fair value to measure assets and liabilities and is intended to respond to investors' requests for expanded information about the extent to which companies' measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on income. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. SFAS 157 also requires expanded disclosure of the effect on income for items measured using unobservable data, establishes a fair value hierarchy that prioritizes the information used to develop those assumptions and requires separate disclosure by level within the fair value hierarchy. The provisions of SFAS 157 are effective on January 1, 2008. We have not yet determined the impact of SFAS 157 on our consolidated financial statements. 25 REPRO-MED SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS Continued 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. NOTE 3 INVENTORY Inventory is valued at the lower of average cost or market and consists of the following at: February 28 ----------- 2007 2006 ---- ---- Raw Material ................. $344,348 $254,475 Work in progress ............. 47,042 28,795 Finished Goods ............... 98,348 64,122 -------- -------- $489,738 $347,392 ======== ======== NOTE 4 PROPERTY AND EQUIPMENT Property and equipment consists of the following at: February 28 ----------- Estimated 2007 2006 Useful Lives ---- ---- ------------ Furniture and office equipment .... $ 346,482 $ 343,064 5 years Manufacturing equipment and tooling 940,362 930,862 7 - 12 years ---------- ---------- 1,286,844 1,273,926 Less: accumulated amortization and depreciation ..................... 1,066,329 1,005,830 ---------- ---------- Property and Equipment, Net ....... $ 220,515 $ 268,096 ========== ========== 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, included in current liabilities are notes payable to related parties of $71,27., Included in this amount is $69,274 to the President of the Company and $2,000 to the former Controller. The $69,274 to the President represents short term advances that are secured by certain customer accounts receivable. The $2,000 to the former controller is currently past due and bears interest at the rate of 2% over prime. See also Note 8 for additional loans payable to the President. 26 REPRO-MED SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS Continued Leased Aircraft --------------- The Company leases an aircraft from a Company controlled by the President. The lease payments aggregated $21,500 and $22,500 for the years ended February 28, 2007 and 2006, respectively. The original lease agreement has expired and the Company is currently on a month-to-month basis for rental payments. NOTE 6 NOTE PAYABLE TO BANK - DEMAND The Company had a demand note with a local financial institution in the amount of $198,553 at February 28, 2006. The note bore interest at the rate of 8.5% and is secured by the Company's assets as well as personal guarantees of the President and a Company Director. In October, 2006 the loan was repaid. 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 2006 ---- ---- Total minimum lease payments ........... $ 650 $13,816 Less: amounts representing interest .... 35 3,763 ------- ------- Net minimum lease payments ....... 617 10,053 Less: current portion .................. 617 9,437 ------- ------- Long-term portion ...................... $ 0 $ 616 ======= ======= NOTE 8 LONG-TERM DEBT Long-term debt consists of the following at: February 28, ------------ 2007 2006 ---- ---- 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. As of February 28, 2007, 75,000 shares of common stock are to be issued to these note holders... $ 25,000 $ 25,000 27 REPRO-MED SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS Continued 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. As of February 28, 2007, 812,000 shares of common stock are to be issued to these note holders... 405,000 405,000 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 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...................... 325,000 - -------- -------- $855,000 $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 On February 2, 1993, the Company sold 10,000 shares of $0.01 par value Convertible Cumulative Preferred Stock at a price of $10.00 per share. Dividends are payable semi-annually at an annual rate of $8,000 or 8% of $100,000. Effective February 28, 2005 the Convertible Cumulative Preferred Stock can be converted to 238,095 shares of common stock at a conversion price of $0.42 per share. Dividends for the years ending February 28, 2007 and 2006 have been accrued but not paid. On October 31, 1996, the Company purchased, in a private offering, 275,000 shares of common stock at a price of $0.08 per share, a total of $22,000. On September 10, 1996, the Company purchased, in a private offering, 2,000,000 shares of common shares at a price of $0.06 per share, a total of $120,000. These treasury shares may be sold at a future time or utilized for corporate use. In connection with note agreements executed in April 2003, the Company is obligated to issue one share per quarter for each dollar of indebtedness, which exists at the calendar quarter. At February 28, 2007, the Company is obligated to issue 210,000 shares of its common stock to these note holders at prices ranging from $0.06 to $0.11 per share. These shares have not been issued to date, but have been reflected as issued in the accompanying financial statements. 28 REPRO-MED SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS Continued In connection with note agreements executed between February 2004 and May 2005, the Company is obligated to issue 4 shares for every dollar of principal borrowed. As at February 28, 2007 the Company is obligated to issue 1,492,000 shares to these note holders at a price ranging from $0.06 to $0.11 per share. These shares have not been issued to date, but have been reflected as issued for the accompanying financial statements. In September and October 2005, the Company sold 1,214,286 shares of its common stock for cash at $0.07 per share, a total of $85,000. 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. 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. 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 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 will be amortized to income in proportion to rental expense over the term of the related lease. At February 28, 2006 minimum future rental payments are: Year Minimum Rental Payments ---- ----------------------- 2008 $ 120,000 2009 120,000 thereafter $1,205,000 ---------- $1,565,000 ========== Rent expense for the year ended February 28, 2007 aggregated $120,000. NOTE 11 COMMITMENTS AND CONTINGENCIES The Company is contingently liable to rework approximately 13,000 units of its product for a customer order, which was completed in prior years. The total additional material and labor cost to complete this rework approximates $70,000. This amount has not been provided in the accompanying financial statements. NOTE 12 LITIGATION The company has been served a complaint by a former commissioned salesman for alleged eared commissions. The aggregate amount of the complaint is approximately $30,000. The company contends that complaint is frivolous and with out merit. 29 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None ITEM 8A. CONTROLS AND PROCEDURES Our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of February 28, 2007 in alerting him in a timely manner to material information required to be included in our Securities and Exchange Commission reports. In addition, no change in our internal control over financial reporting occurred during the fourth quarter of the fiscal year ended February 28, 2007 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 61 President 1980, Treasurer 1983, Chairman 1989, Director 1980, CEO 1986 Paul Mark Baker 56 Director 1991 Nathan Blumberg 71 Director 2000 Remo Spagnoli 77 Director 1993 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 office 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 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. 30 ITEM 10. EXECUTIVE COMPENSATION Andrew I. Sealfon, President, received $116,757 in salary from Repro-Med during the fiscal year ended February 28, 2007. Mr. Sealfon had been granted incentive stock options, which expired February 28, 2006, in Repro-Med under its 1995 Stock Option Plan. 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 2005: Value of Number of Unexercised Unexercised In-the-Money Shares Options at Options at Acquired Year-end Year-end Name of On Value Exercisable / Exercisable/ Individual Exercise Realized Unexercisable Unexercisable - ---------- -------- -------- ------------- ------------- A. I. Sealfon - ------------- Exercisable 0 0 0 $0 Unexercisable 0 0 0 $0 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of February 2007, 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 *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. 31 (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 250,000 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. Price No. Shares & Earliest Name Main Position Per Share Date of 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. 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. 32 All new directors were granted an option for 100,000 shares at an exercise price of $.25 per share during the fiscal year 2002, which are vested at 20,000 options per year for five years. The Company has reminded each of said directors to file an SEC Form 3 or SEC Form 4, as applicable, with respect to such option grant. The Company's officers and directors who participated in the debt private placement have not yet filed their SEC Forms 4 to reflect the shares that they will receive. 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. 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, 2007 and February 28, 2006: FEE CATEGORY FISCAL 2007 FEES FISCAL 2006 FEES ------------ ---------------- ---------------- Audit Fees (1) $23,500 $23,500 (1) Audit fees, 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, 2007 and February 28, 2006, 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. 33 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. 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 (31) Rule 13a-14(a)/15d-14(a) Certifications: 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (32) Section 1350 Certifications: 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (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. 34 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 4, 2007 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 4, 2007 - ----------------------------- Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, and Chief Executive Officer, Chief Financial Officer /s/ Dr. Nathan Blumberg June 4, 2007 - ----------------------------- Dr. Nathan Blumberg, Director /s/ Dr. Paul Mark Baker June 4, 2007 - ----------------------------- Dr. Paul Mark Baker, Director /s/ Remo Spagnoli June 4, 2007 - ----------------------------- Remo Spagnoli, Director 35