UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES ACT OF 1934 For the quarterly period ended NOVEMBER 30, 2007 ----------------- Commission File Number 0-12305 ------- NEW YORK 13-3044880 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 24 CARPENTER ROAD, CHESTER, NY 10918 ------------------------------ ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (845) 469-2042 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ( X ) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 30, 2007 ----- -------------------------------- Common stock, $.01 par value 32,804,286 shares REPRO-MED SYSTEMS, INC. TABLE OF CONTENTS PAGE ---- PART I ITEM 1. Financial Statements Balance Sheet (Unaudited) - November 30, 2007 and February 28, 2007 (Audited) ....................................... 3 Statements of Operations (Unaudited) - for the three-months Ending November 30, 2007 and November 30, 2006 .................... 4 Statements of Cash Flow (Unaudited) - for the three months Ending November 30, 2007 and November 30, 2006 .................... 5 Notes to Unaudited Financial Statements ........................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................... 7 PART II ITEM 1. Legal Proceedings ................................................. 13 ITEM 2. Changes in Securities ............................................. 13 ITEM 3. Defaults Upon Senior Securities ................................... 13 ITEM 4. Submission of Matters to a Vote of Security Holders ............... 14 ITEM 5. Other Information ................................................. 14 ITEM 6. Exhibits and Reports on Form 8-K .................................. 14 ITEM 7. Internal Controls and Producers ................................... 14 2 REPRO-MED SYSTEMS, INC. BALANCE SHEETS ASSETS
NOVEMBER 30, 2007 FEBRUARY 28, 2007 (UNAUDITED) (AUDITED) ----------------- ----------------- CURRENT ASSETS: Cash ............................................................... $ 75,026 $ 99,421 Accounts Receivable less allowance for doubtful accounts of $25,045 and $21,950 for November 30, 2007 and February 28 2007 respectively 286,951 214,446 Inventory .......................................................... 495,515 489,738 Prepaid Expenses ................................................... 29,824 10,310 ----------- ----------- TOTAL CURRENT ASSETS ............................................... 887,316 813,915 PROPERTY & EQUIPMENT, less accumulated depreciation of $1,095,662 and $1,066,329 for November 30, 2007 and February 28, 2007, respectively 212,932 220,515 OTHER ASSETS: Patents, net of accumulated amortization of $81,224 and $78,675 for November 30, 2007 and February 28, 2007 respectively .............. 43,034 40,588 Goodwill, .......................................................... 8,609 8,609 Security Deposits .................................................. 28,156 54,802 ----------- ----------- TOTAL OTHER ASSETS ................................................. 79,799 103,999 ----------- ----------- TOTAL ASSETS ......................................................... $ 1,180,047 $ 1,138,429 =========== =========== LIABILITIES AND STOCKHOLDERS' (DEFICIT) CURRENT LIABILITIES Notes payable to related parties ................................... $ 88,036 $ 71,274 Accounts Payable ................................................... 400,599 443,440 Accrued Expenses ................................................... 82,539 46,179 Accrued Interest ................................................... 50,361 44,565 Current Portion of capital lease obligations ....................... - 617 Accrued Preferred stock dividends .................................. 48,000 44,000 Accrued payroll and related taxes .................................. 4,860 9,408 ----------- ----------- TOTAL CURRENT LIABILITIES ............................................ 674,395 659,483 OTHER LIABILITIES Deferred capital gain .............................................. 252,916 269,776 Long-term debt - notes payable ..................................... 855,000 855,000 ----------- ----------- TOTAL OTHER LIABILITIES ............................................ 1,107,916 1,124,776 ----------- ----------- TOTAL LIABILITIES .................................................... 1,782,311 1,784,259 STOCKHOLDERS' DEFICIT Preferred Stock, 8% cumulative, liquidation value $100,000, $0.01 par value, 2,000,000 shares authorized, 10,000 shares issued and outstanding 2007 and 2006, respectively ........................... 100 100 Common Stock, $0.01 par value, 50,000,000 shares authorized, 32,804,286 and 31,033,286 issued and outstanding at November 30, 2007 and February 28, 2007, respectively ............. 328,043 310,333 Additional paid-in Capital ......................................... 2,708,396 2,612,748 Accumulated deficit ................................................ (3,496,803) (3,427,011) ----------- ----------- (460,264) (503,830) Less: Treasury Stock, 2,275,000 shares at cost at November 30, 2007 and February 28, 2007 respectively .............. (142,000) (142,000) ----------- ----------- Total Stockholders' Deficit ........................................ (602,264) (645,830) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT .......................... $ 1,180,047 $ 1,138,429 =========== =========== See Accompanying Notes to Financial Statements 3
REPRO-MED SYSTEMS, INC. STATEMENT OF OPERATIONS UNAUDITED
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED NOVEMBER 30, NOVEMBER 30, 2007 2006 2007 2006 --------- --------- ------------ ------------ NET SALES ................................ $ 620,879 $ 457,991 $ 1,624,242 $ 1,221,724 COST AND EXPENES Cost of goods Sold ..................... 226,248 200,702 615,770 495,702 Selling, general and administrative .... 288,987 205,094 871,356 715,205 Research and development ............... 8,651 9,990 34,761 31,622 Depreciation and amortization .......... 16,186 16,820 48,248 51,916 --------- --------- ------------ ------------ TOTAL COSTS AND EXPENSES ................. 540,072 432,606 1,570,135 1,294,445 ========= ========= ============ ============ NET OPERATING PROFIT (LOSS) .............. 80,807 25,385 54,107 (72,721) OTHER INCOME/(EXPENSES) Interest Expense ....................... (19,448) (93,080) (120,410) (211,443) Interest and Other Income .............. - - 512 54 --------- --------- ------------ ------------ TOTAL OTHER INCOME/(EXPENSE) ............. (19,448) (93,080) (119,898) (211,389) --------- --------- ------------ ------------ NET PROFIT (LOSS) BEFORE TAXES ........... 61,359 (67,695) (65,791) (284,110) Provision for Income Taxes ............. - - - - --------- --------- ------------ ------------ --------- --------- ------------ ------------ NET PROFIT (LOSS) AFTER TAXES ............ $ 61,359 $ (67,695) $ (65,791) $ (284,110) ========= ========= ============ ============ NET PROFIT (LOSS) PER COMMON SHARE ....... 0.01 (0.01) (0.01) (0.01) ========= ========= ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 32,193,155 30,613,286 ============ ============ See Accompanying Notes to Financial Statements 4
REPRO-MED SYSTEMS, INC. STATEMENT OF CASH FLOWS UNAUDITED
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2007 2006 -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Loss ................................................... $(65,791) $(284,110) Adjustments to reconcile net loss to net cash used in operating activities: Stock based Compensation to obtain loan financing ...... 75,840 159,390 Stock Options to employee's and directors .............. 37,518 - Depreciation and amortization .......................... 48,248 52,053 Deferred capital gain - building lease ................. (16,860) (16,860) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ............. (72,505) (46,611) (Increase) decrease in inventory ....................... (5,777) (54,934) (Increase) decrease in prepaid expense ................. (19,514) (4,428) Increase (decrease) in accounts payable ................ (42,842) 82,472 Increase (decrease) in preferred stock dividend ........ 4,000 - Increase (decrease) in accrued payroll and related taxes (4,547) - Increase (decrease) in accrued expense ................. 36,360 (5,536) Increase (decrease) in accrued interest ................ 5,795 - -------- --------- NET CASH USED IN OPERATING ACTIVITIES ........................ (20,075) (118,564) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ......................... (36,851) (4,590) Additional patent costs .................................... (6,260) - Security Deposits .......................................... 26,646 - -------- --------- NET CASH USED IN INVESTING ACTIVITIES ........................ (16,465) (4,590) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of Bank Loan ..................................... - (198,553) Preferred stock dividends .................................. (4,000) - Proceeds from note payable to related party ................ 16,762 395,395 Payments on capitalized lease obligations .................. (617) (6,990) -------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES .................... 12,145 189,852 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......... (24,395) 66,698 CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR .................. 99,421 26,753 -------- --------- CASH AND CASH EQUIVALENTS-END OF YEAR ........................ $ 75,026 93,451 ======== ========= Cash paid during the year for: Interest ................................................... 14,698 52,053 See Accompanying Notes to Financial Statements 5
REPRO-MED SYSTEMS, INC. NOTES TO THE FINANCIAL STATEMENTS UN-AUDITED BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with instructions to Form 10-QSB. Accordingly, they do not include all of the information and disclosures required for annual financial statements. These financial statements should be read in conjunction with the financial statements and related footnotes for the year ended February 28, 2007 included in the Form 10-KSB for the year then ended. In the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of November 30, 2007 and the results of operations and cash flows for the nine-month period ended November 30, 2007 and 2006 have been included. The results of operations for the three-month period ended November 30, 2007, are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in the Company's Form 10-KSB as filed with the Securities and Exchange Commission for the year ended February 28, 2007. STOCKHOLDERS' EQUITY/NOTES PAYABLE In connection with the Company's notes, the Company is obligated to issue four shares of its common stock each year for each dollar of principal borrowed. As of November 30, 2007 the Company is obligated to issue an additional 1,771,000 shares for previously executed note agreements. Such shares have been considered as issued for purposes of financial reporting. RELATED PARTY LOANS The President of the Company has advanced the Company $100,000 under a demand loan which bears interest at the rate of 8%. 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 $88,036. Included in this amount is $66,036 to the President of the Company and $2,000 to the former Controller. The $66,036 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. During the third quarter a member of the Board of Directors loaned the company $20,000 to make certain leasehold improvements. The loan bears interest at 6% simple interest and is unsecured. STOCK OPTIONS In June 2006, The Company approved the issuance of 4,360,000 shares to be awarded to employees and directors of the company. The company believes that such awards better align the intent of its employees and directors with those of its shareholders. The Options were granted with an exercise equal to the market price of the company's hares at the date of grant, which was $.06 per share. The fair market value of each option awarded is estimated on the date of grant using the Black Scholes Option Model that uses the assumptions noted in the following table. The factors utilized in the calculator of the fair market value of the option estimated to be $37,518 is as follows: 6 Option Price ............... $ 0.06 Share Price at date of Grant $ 0.06 Volatility ................. 75% Risk free interest rate .... 3.75% A summary of options activity under the plan at November 30, 2007 is presented below: WEIGHTED WEIGHTED AVERAGE AVERAGE REMAINING EXERCISED CONTRACTUAL SHARES PRICE TERM --------- --------- ----------- Balance February 28, 2007 ........... - - - Grant June 2007 ..................... 4,360,000 0.06 3.5 --------- Balance Outstanding November 30, 2007 4,360,000 0.06 3.5 ========= Exercisable at November 30, 2007 .... 1,690,000 0.06 3.5 ========= At November 30,2007, there was $59,274 of unrecognized compensation cost related to non-vested share based compensation agreements granted under the plan. The cost is expected to be recognized over the weighted average period of 5.5 years. The total fair market value of the shares vested during the years ending February 28, 2008, 2009, 2010 and 2011 is $13,172, $19,758, $19,758 and $6,586. PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-QSB contains certain "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to us that are based on the beliefs of the management, as well as assumptions made by and information currently available. Our actual results may vary materially from the forward-looking statements made in this report due to important factors such as, recent operating losses, uncertainties associated with future operating results, unpredictability related to Food and Drug Administration regulations, introduction of competitive products, limited liquidity, reimbursement related risks, government regulation of the home health care industry, success of the research and development effort, market acceptance of FREEDOM60(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. 7 THREE MONTHS ENDED NOVEMBER 30 2007 VS. 2006 - -------------------------------------------- Sales of the FREEDOM60(R) Syringe Infusion System, related accessories and repairs have become our company's lead product representing 60% of the company's total sales this quarter as compared to 42% for the quarter ended November 30, 2006. Freedom60 sales experienced an overall increase of 97.4% from $196,900 to $388,723 in the third quarter ending November 30, 2007 as compared to the same period in 2006. This increase is primarily due to increased sales for the subcutaneous immune globulin (SCIG) market, which was significantly influenced by a Medicare clarification guidance document specifying the Freedom60 for reimbursement for use with SCIG. Additionally with the exposure of many new providers using the Freedom60, an increase in use for antibiotics also occurred. During the quarter ended November 30, 2007 sales of the RES-Q-VAC(R) and related accessories increased domestically by 46.3% and declined internationally by 34.1% which netted a slight decrease overall of 6.0% from $216,326 to $203,280. These variations appear to be caused by normal fluctuations in ordering patterns with domestic and international sales cycles frequently offsetting during different quarters (See the Nine Months Ended Discussion). Company sales of non-core products (Gyneco, Restore, and OEM lines), which at the end of the current quarter amounted to less than 5% of total sales and declined from $46,903 to $30,457 during the quarter ended November 30,2007. Total sales increased by 35.6% ($162,888) from $457,991 to $620,879 for the three-month period ending November 30,2007. Net Income/(Loss) from operations shows a profit of $80,807 for the three-months ending November 30, 2007 as compared to a profit of $25,315 for the same quarter in 2006 and represents a total improvement of $55,492 quarter over quarter. Net profit for the Quarter was $61,359, which includes $4,750 in stock based compensation for financing cost, as compared to the previous quarter loss of $67,695, which included stock based compensation for financing cost of $88,090. This is due to the stock based compensation for financing cost for 2007 being recorded in the first quarter of 2007 versus being recorded in the second and third quarters of 2006. Gross Profit increased to 64% from 56.4% last year for the same period. This is a result of errors in pricing being recorded to the scrap account; which is consolidated in to Cost of Good Sold, and being reclassified in the third quarter of 2006. When gross profit is reviewed with typical scraping for the quarter the gross profit would have remained consistent with the current quarter. Selling, General and Administrative Expense (SG&A) increased $83,893 from $205,094 to $288,987 quarter over quarter 2007 vs. 2006, which included increased expenses related to our business expansion and included among others, an increase of $20,477 in convention and trade show related expense associated to the MEDICA Trade show attended in November 2007, additional banking fees, office expenses, increased recruiting costs and the fair value of stock option aggregating $37,500. Research and Development decreased $1,339 as a result of increased concentration in the generating sales. Interest expense decreased slightly $793 to $14,698 from $15,491. 8 NINE MONTHS ENDED NOVEMBER 30 2007 VS. 2006 - ------------------------------------------- Total sales increased by 32.95% ($402,518) from $1,221,724 to $1,624,242 for the nine-month period ending November 30, 2007. Net Income/(Loss) from operations shows a profit of $54,107 for the nine-months ending November 30, 2007 as compared to a loss of $72,721 for the same nine-months in 2006 and represents a total improvement of $126,827. Net (Loss) for the nine-months ending was $65,791, which includes $75,840 in stock based compensation for financing cost and $37,518 of employee and director stock options recorded as fair market value, as compared to the previous quarter loss of $284,110, which included stock based compensation for financing cost of $159,390. This is due to the stock based compensation for financing cost for 2007 being recorded in the first quarter of 2007 versus being recorded in the second and third quarters of 2006 as well as higher interest expense. Sales of the FREEDOM60(R) Syringe Infusion System, related accessories and repairs have become our company's lead product representing 52% of the company's total sales for the nine-months ending November 30, 2007 as compared to 40% for the period ended November 2006 with total sales, domestic and international, increasing by 83%. The performance from this period resulted from a management shift in sales strategy which included eliminating outside consulting and in-house sales personnel who were ineffective in driving any new revenues and relying instead on our in house staff. During the past year we decided to focus the majority of our efforts in the Freedom60 line, specifically towards the subcutaneous immune globulin (SCIG) market. We made decisions to directly support clinical trials by providing 42 Freedom60 pumps at our sole expense into a phase IV clinical trial. We attended fourteen SCIG nursing education programs. This has allowed us to meet hundreds of nurses all over the country who administer to the needs of this market. We applied for better reimbursement from Medicare for the Freedom60. Due to our direct efforts, reimbursement was increased twenty fold and subsequently resulted in Medicare issuing a letter of clarification stating the Freedom60 as the only pump approved for SCIG reimbursement. Lastly, we diligently called on, in-serviced and sold virtually every major SCIG provider in the country. We anticipate these sales to continue to increase as the SCIG market continues to develop and as we work on new enhancements to the Freedom60 that we believe will expand this market even further. In addition, many of the SCIG users will see benefit in using the Freedom60 system for other uses, such as antibiotics, chemotherapeutics and pain medications Sales of the RES-Q-VAC(R) increased overall by 6.1% from $556,802 to $590,823 with the international sales increasing by 5.4% from $297,024 to $313,010 and the domestic increasing by 6.9% from $259,778 to $277,813 for the nine-months ended November 30,2007 vs. nine-months ended November 30, 2006. The RES-Q-VAC sales occur in long sales cycles making short term trend analysis problematic. International sales cycles appear to run in approximately 18 month cycles. Gross Profit increased slightly from 59.43% to 62.01% of net sales 2007. This is a result of errors in pricing being recorded to the scrap account; which is consolidated in to Cost of Good Sold, and being reclassified in the third quarter of 2006. When gross profit is reviewed with typical scraping for the quarter the gross profit would have remained consistent with the current quarter. Selling, General and Administrative Expense (SG&A) increased 21.83% from $715,205 in 2006 to $871,356 in 2007. This is increase is directly related to increases in trade show expenses, product liability insurance, recruiting expense, temporary help, the legal agreement and fees associated with a mediation agreement and the fair value of stock options aggregating $37,500. 9 Research and development expenses increased minimally by $3,141 from 2006 to 2007. Depreciation and amortization expense decreased by $3,668 from 2006 to 2007, as a result of equipment reaching the end of it depreciable life and not being fully replaced by equivalent capital investments. Interest expense has decreased $7,483 from 2006 to 2007 as a result of paying off high interest notes to the bank. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Liquidity has improved due to increased sales resulting in positive cash flow for the past two quarters. The additional resource's have been applied to a decrease in accounts payable which include vendors and selected debts, increases in prepaid debts, and a slight increase in inventory. 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 attention has been directed into our marketing during the past year which produced an increase in new RES-Q-VAC(R) customers and significant increases in new FREEDOM60(R) users. Our marketing focus on the Freedom60 will continue and is expected to maintain the trend of increasing sales for that product line. We believe we will continue to enhance our customer base for our products. With the current capital and cash flow, and if sales continue to meet the Company's targets, which we expect but cannot assure, we will have sufficient resources to meet our obligations for the next twelve months. However, if the current trend does not continue, and if new funding does not become available, then our viability could be in question. We remain cautiously optimistic that, at a minimum, sales will continue to increase and meet our expectations and needs for the coming year. FREEDOM60(R) - ------------ The FREEDOM60(R) Syringe Infusion Pump is designed for ambulatory medication infusions. Ambulatory infusion pumps are most prevalent in the home care market. Other potential applications for the FREEDOM60(R) are pain control, the infusion of specialized drugs such as IgG, and chemotherapy. The home infusion therapy market is comprised of approximately 4,500 sites of service, including local and national organizations, hospital-affiliated organizations, and national home infusion organizations, and produces approximately $4.5 Billion in revenue annually (Ref: www.nhianet.org). With insurance reimbursement in a severe decline, there is a tremendous need for a low-cost, effective alternative to electronic and expensive disposable IV administration devices for the home care and nursing home market. 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) Pre-market Notification for initial design of the FREEDOM60(R) as a Class II device was approved by the FDA in August 1994. 10 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. The FREEDOM60(R) use 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. 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. In order to receive more favorable Medicare reimbursement for our FREEDOM60(R) 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. 11 Current approved uses under Medicare include among others, subcutaneous immune globulin, antivirals, antifungals, and chemotherapeutics. In June 2007 CMS issued a clarification that the Freedom 60(R) Syringe Infusion Pump is the only allowable pump to be billed with subcutaneous immune globulin under HCPCS code E0779. RES-Q-VAC(R) - ------------ 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. 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. 12 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 there from. We provide special hospital kits, which are fully stocked to meet all hospital applications for both adult and pediatric. Nursing homes, hospice, sub-acute - we provide special configurations for dining areas, portable suctioning for outside events and travel. Chronic suction can be accommodated with RES-Q-VAC(R), which can be left by the bedside for rapid use during critical times. Dental applications - we offer a version of the RES-Q-VAC(R), called DENTAL-EVAC(R) which addresses the needs of oral surgeons for emergency back up suction during a procedure. DENTAL-EVAC(R) is supplied with the dental suction attachments such as saliva ejector and high volume evacuator. Military Applications -Due to its lightweight, portability, and rapid deployment, we believe that the RES-Q-VAC(R) is ideal for any military situation. In addition, rapid, aggressive, and repeated suctioning best treats exposure to chemical weapons of mass destruction such as Sarin. 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. TRADE SHOWS - ----------- We continue to support our products at several trade shows. During the months of November attend the MEDICA Show in Dusseldorf, Germany. PART II - OTHER INFORMATION - --------------------------- ITEM 1. 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. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - -------------------------------------------------- None ITEM 3. DEFAULTS UPON SENIOR SECURITIES - ---------------------------------------- None 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ No matters were submitted to a vote of security holders of the Company during the quarter ended November 30, 2007. ITEM 5. OTHER INFORMATION - -------------------------- None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (a) EXHIBITS 31.1 Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act 2002 32.1 Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 2002 (b) REPORTS ITEM 7. CONTROLS AND PROCEDURES - -------------------------------- INTERNAL 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 we have disclosure controls and procedures as of November 30, 2007 In addition, no change in our internal control over financial reporting occurred during the third quarter of the fiscal year ended February 28, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 14 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized. REPRO-MED SYSTEMS, INC. /s/ Andrew I. Sealfon January 22, 2008 - --------------------- Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, and Chief Executive Officer 15