U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON,
D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended November 30,2010
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________ to ________.
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 Identification No.)
incorporation or organization)
24 Carpenter Road, Chester New York 10918
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (845) 469-2042
(Former name, former address and former fiscal year,
if changed since last report)
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 of 1934 during
the preceding 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. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files.) Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
As of November 30, 2010, 36,536,667 shares of common stock, $.01 par value per
share, were outstanding.
REPRO-MED SYSTEMS, INC.
TABLE OF CONTENTS
PAGE
----
PART I FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
Balance Sheets - November 30,2010 (Unaudited) and
February 28, 2010 ............................................... 3
Statements of Operations (Unaudited) - for the Three Months and
Nine Months Ended November 30, 2010 and November 30, 2009 ....... 4
Statements of Cash Flows (Unaudited) - for the Nine Months Ended
November 30, 2010 and November 30, 2009 ......................... 5
Notes to Financial Statements ................................... 6-13
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................... 14-20
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ...... 20
ITEM 4. Controls and Procedures ......................................... 20
PART II OTHER INFORMATION
--------------------------
ITEM 1. Legal Proceedings ............................................... 21
ITEM 1A. Risk Factors .................................................... 21
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds .... 21
ITEM 3. Defaults Upon Senior Securities ................................. 21
ITEM 4. Removed and Reserved............................................. 21
ITEM 5. Other Information ............................................... 21
ITEM 6. Exhibits ........................................................ 21
Page 2
PART 1 - FINANCIAL INFORMATION
REPRO-MED SYSTEMS, INC.
BALANCE SHEETS
NOVEMBER 30, FEBRUARY 28,
2010 2010
UNAUDITED
----------- -----------
ASSETS
CURRENT ASSETS:
Cash .............................................................. $ 1,362,903 $ 813,383
Accounts receivable less allowance for doubtful accounts of $33,943
and $30,823 for November 30, 2010 and February 28, 2010
respectively ..................................................... 351,532 654,960
Inventory ......................................................... 689,332 634,584
Prepaid expenses .................................................. 73,018 67,611
Deferred Tax Asset ................................................ 283,311 308,250
----------- -----------
Total Current Assets ................................................ 2,760,096 2,478,788
----------- -----------
PROPERTY & EQUIPMENT, less accumulated depreciation of $1,299,898 and
$1,256,617 at November 30, 2010 and February 28, 2010 respectively 264,306 221,043
OTHER ASSETS:
Patents, net of accumulated amortization of $100,873 and 96,745 at
November 30, 2010 and February 28, 2010, respectively ............ 31,280 34,958
Security deposit .................................................. 28,156 28,156
Deferred Tax Asset ................................................ -- 224,734
----------- -----------
Total Other Assets .................................................. 59,436 287,848
----------- -----------
TOTAL ASSETS ........................................................ $ 3,083,838 $ 2,987,679
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - current portion .................................... $ 1,893 $ 29,483
Notes payable to related parties - current portion ................ 38,431 36,744
Deferred capital gain - current portion ........................... 22,481 22,481
Accounts payable .................................................. 68,388 80,717
Accrued expenses .................................................. 60,100 118,740
Accrued interest .................................................. -- 54,183
Accrued preferred stock dividends ................................. -- 68,000
Accrued payroll and related taxes ................................. 38,713 12,655
Warranty liability ................................................ 70,363 72,188
----------- -----------
Total Current Liabilities ........................................... 300,369 495,191
----------- -----------
OTHER LIABILITIES
Note payable - less current portion ............................... 4,047 5,480
Notes payable to related parties - less current portion ........... 489,221 618,259
Deferred capital gain less current portion ........................ 162,995 179,855
----------- -----------
Total Other Liabilities ............................................. 656,263 803,594
----------- -----------
Total Liabilities ................................................... 956,632 1,298,785
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, 8% cumulative, liquidation value $100,000, $0.01
par value, 2,000,000 shares authorized, 10,000 shares issued and
outstanding at February 28, 2010 ................................. -- 100
Common Stock, $0.01 par value, 50,000,000 shares authorized,
36,536,667 and 35,584,286 issued and outstanding at November 30,
2010 and February 28, 2010, respectively ......................... 365,367 355,843
Additional paid-in Capital ........................................ 3,011,249 3,008,162
Accumulated deficit ............................................... (1,107,410) (1,533,211)
----------- -----------
2,269,206 1,830,894
Less: Treasury Stock, 2,275,000 shares at cost at November 30, 2010
and February 28, 2010 ............................................ (142,000) (142,000)
----------- -----------
Total Stockholders' Equity .......................................... 2,127,206 1,688,894
----------- -----------
Total Liabilities and Stockholders' Equity .......................... $ 3,083,838 $ 2,987,679
=========== ===========
The accompanying notes are an integral part of these Financial Statements
Page 3
REPRO-MED SYSTEMS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
NOVEMBER 30 NOVEMBER 30
2010 2009 2010 2009
------------ ------------ ------------ ------------
NET SALES ........................... $ 1,254,198 $ 898,103 $ 3,316,528 $ 2,658,288
COST AND EXPENSES
Cost of goods sold ................ 411,080 309,800 1,140,795 928,016
Selling, general and administrative 528,176 457,783 1,496,899 1,259,020
Research and development .......... 8,444 6,841 26,044 20,850
Depreciation and amortization ..... 16,184 14,891 47,409 49,543
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES ............ 963,884 789,315 2,711,147 2,257,429
------------ ------------ ------------ ------------
NET OPERATING PROFIT ................ 290,314 108,788 605,381 400,859
OTHER INCOME/(EXPENSES)
Gain (Loss) Currency Exchange ..... 2,393 (443) (2,835) (3,271)
Interest Expense .................. (8,230) (11,374) (28,335) (35,515)
Forgiveness of Interest ........... -- -- 28,425 --
Interest and Other Income ......... 1,006 437 4,838 1,117
------------ ------------ ------------ ------------
TOTAL OTHER INCOME/(EXPENSE) ........ (4,831) (11,380) 2,093 (37,669)
------------ ------------ ------------ ------------
NET PROFIT BEFORE TAXES ......... 285,483 97,408 607,474 363,190
Provision for Income Taxes ........ (117,334) (41,923) (249,673) (133,041)
------------ ------------ ------------ ------------
NET INCOME ...................... $ 168,149 $ 55,485 $ 357,801 $ 230,149
============ ============ ============ ============
PREFERRED STOCK DIVIDENDS ........... -- -- -- $ 4,000
------------ ------------ ------------ ------------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS ........................ $ 168,149 $ 55,485 $ 357,801 $ 226,149
============ ============ ============ ============
NET INCOME PER COMMON SHARE
AVAILABLE TO COMMON STOCKHOLDERS . $ -- $ -- $ .01 $ .01
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ...................... 36,536,667 35,584,286 35,920,217 35,309,741
============ ============ ============ ============
The accompanying notes are an integral part of these Financial Statements
Page 4
REPRO-MED SYSTEMS, INC
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
2010 2009
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ............................................... $ 357,801 $ 230,149
Adjustments to reconcile net income to net cash from
operating activities:
Stock based Compensation ............................... 12,511 19,312
Depreciation and amortization .......................... 47,409 49,543
Deferred capital gain - building lease ................. (16,860) (16,860)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............. 303,428 (34,061)
(Increase) decrease in inventory ....................... (54,748) (116,074)
(Increase) decrease in prepaid expense ................. (5,407) 4,634
(Increase) decrease in deferred tax asset .............. 249,673 127,000
Increase (decrease) in accounts payable ................ (12,329) (82,795)
Increase (decrease) in accrued payroll and related taxes 26,058 8,472
Increase (decrease) in accrued expense ................. (58,640) (41,177)
Increase (decrease) in customer deposits ............... -- (92)
Increase (decrease) in warranty liability .............. (1,825) (21,261)
Increase (decrease) in accrued interest ................ (54,183) 6,000
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................. 792,888 132,790
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment ...................... (86,544) (48,945)
Payments for patents ..................................... (450) (4,169)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ...................... (86,994) (53,114)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable ............................... -- 7,837
Payments to note payable to related parties .............. (127,351) (25,763)
Payments on notes payable ................................ (29,023) (3,605)
------------ ------------
NET CASH USED BY FINANCING ACTIVITIES ...................... (156,374) (21,531)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................. 549,520 58,145
CASH BEGINNING OF YEAR ..................................... 813,383 519,209
------------ ------------
CASH END OF YEAR ........................................... $ 1,362,903 $ 577,354
============ ============
Supplemental Information
Cash paid during the year for:
Interest ................................................. $ 25,668 $ 29,515
Non Cash Activities
Issuance of Common Stock to reduce related party loan .... $ -- $ 83,050
Conversion of Preferred Stock into Common Stock .......... $ 100,000 $ --
The accompanying notes are an integral part of these Financial Statements
Page 5
REPRO-MED SYSTEMS, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE NATURE OF OPERATIONS
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.
BASIS OF PRESENTATION
The accompanying unaudited financial statements as of November 30, 2010 have
been prepared in accordance with generally accepted accounting principles in
accordance with instructions to regulation S-X. Accordingly, they do not include
all of the information and disclosures required by accounting principles
generally accepted in the United States of America for complete financial
presentation.
In the opinion of the Company's management, the financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's financial position as of November 30, 2010 and the results
of operations and cash flow for the interim periods ended November 30, 2010 and
2009.
The results of operations for the three months and nine months ended November
30, 2010 and 2009 are not necessarily indicative of the results to be expected
for the full year. These interim financial statements should be read in
conjunction with the financial statements and notes thereto of the Company and
management's discussion and analysis of financial condition and results of
operations included in the Company's Annual Report for the year ended February
28, 2010, as filed with the Securities and Exchange Commission on Form 10-K.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to be
cash equivalents.
INVENTORY
Inventories consist of purchased parts and assembled units and are stated at the
lower of average cost or market value. Average cost is calculated using a
rolling average based upon new purchases and quantities.
PATENTS
Costs incurred in obtaining patents have been capitalized and are being
amortized over seventeen years.
Page 6
INCOME TAXES
Deferred income taxes are provided using the liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carry forwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of the changes in tax laws and rates of the date of
enactment.
The Company recorded deferred tax assets in the amount of $283,311 and $532,984
on November 30, 2010 and February 28, 2010, respectively. The deferred tax
assets have been offset by valuation allowances of $0 at November 30, 2010 and
February 28, 2010, respectively. Management based the valuation allowance
calculations on the prospect of future profitability.
The company recorded income tax expense in the amount of $117,334 and $41,923
for the three months ended November 30,2010 and 2009, respectively, and $249,673
and $133,041 for the nine months ended November 30, 2010 and 2009, respectively.
When tax returns are filed, it is highly certain that some positions taken would
be sustained upon examination by the taxing authorities, while others are
subject to uncertainty about the merits of the position taken or the amount of
the position that would be ultimately sustained. The benefit of a tax position
is recognized in the financial statements in the period during which, based on
all available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of
tax benefit that is more than 50% likely of being realized upon settlement with
the applicable taxing authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described above is reflected
as a liability for unrecognized tax benefits in the balance sheet along with any
associated interest and penalties that would be payable to the taxing
authorities upon examination. The Company does not have any unrecognized tax
benefits at November 30, 2010 and February 28, 2010 or during the periods then
ended. No unrecognized tax benefits are expected to arise within the next twelve
months.
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.
Page 7
NET INCOME PER COMMON SHARE
Basic earnings per share is computed on the weighted average of common shares
outstanding during each year. Prior to the quarter ending August 31, 2010
diluted earnings per share included an increase to income for the preferred
stock dividends and an increase in the weighted average shares by the common
shares issuable upon exercise of employee and director stock options (Note 6)
and convertible preferred stock shares. For the periods ended August 31,2010 and
thereafter, diluted earnings per share only includes an increase in the weighted
average shares by the common shares issuable upon exercise of employee and
director stock options (Note 6). See the following:
INCOME SHARES PER-SHARE
THREE-MONTHS ENDED NOVEMBER 30, 2010 (NUMERATOR) (DENOMINATOR) AMOUNT
------------------------------------ ------------- ------------- ------------
Basic Net Income Per Common Share
Income available ................. $ 168,149 36,536,667 $ 0.00
Preferred stock dividends ........ -- -- --
Options includable ............... -- 2,752,594 --
Convertible preferred stock ...... -- -- --
------------- ------------- ------------
Diluted Net Income Per Common Share $ 168,149 39,289,261 $ 0.00
------------- ------------- ------------
INCOME SHARES PER-SHARE
NINE-MONTHS ENDED NOVEMBER 30, 2010 (NUMERATOR) (DENOMINATOR) AMOUNT
------------------------------------ ------------- ------------- ------------
Basic Net Income Per Common Share
Income available ................. $ 357,801 35,920,217 $ 0.01
Preferred stock dividends ........ -- -- --
Options includable ............... -- 2,752,594 --
Convertible preferred stock ...... -- -- --
------------- ------------- ------------
Diluted Net Income Per Common Share $ 357,801 38,672,811 $ 0.01
------------- ------------- ------------
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Important estimates include but are not limited to, asset lives,
valuation allowances, inventory and accruals.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
In determining the allowance for doubtful accounts the Company analyzes the
aging of accounts receivable, historical bad debts, customer creditworthiness
and current economic trends.
Page 8
REVENUE RECOGNITION
Sales of manufactured products are recorded when shipment occurs and title
passes to a customer, persuasive evidence of an arrangement exists with the
customer, the sales price is fixed and determinable and the collect ability 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 not included in sales. The Company does not accept return of
goods shipped unless it is a Company error. The Company does not grant sales
allowances other than an occasional 1% discount for payments made within 30
days. The only credits provided to customers are for defective merchandise and
sales incentives are occasional advertising in customer catalogues.
STOCK-BASED COMPENSATION
The Company accounts for employee stock based compensation and stock issued for
services using the fair value method. 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.
The measurement date of shares issued for service is the date when the
counterparty's performance is complete.
SUBSEQUENT EVENTS
-----------------
The Company has evaluated subsequent events through January 14, 2011, the date
on which the financial statements were issued.
RECLASSIFICATIONS
-----------------
Certain amounts in the February 28, 2010 and November 30, 2009, financial
statements have been reclassified to conform to the presentation used in the
November 30, 2010, financial statements.
NOTE 2 INVENTORY
Inventory is valued at the lower of average cost or market and consists of the
following at:
November 30, 2010 February 28, 2010
----------------- -----------------
Raw materials ........ $422,473 $451,444
Work in progress ..... 77,721 18,572
Finished goods ....... 189,138 164,568
-------- --------
$689,332 $634,584
-------- --------
Page 9
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
November 30, February 28, Estimated
2010 2010 Useful Lives
------------ ------------- ------------
Furniture and office equipment .. $ 514,887 $ 489,679 5 years
Manufacturing equipment and
tooling ......................... 1,049,317 987,981 7-12 years
------------ -------------
1,564,204 1,477,660
Less: accumulated amortization
and depreciation ................ 1,299,898 1,256,617
------------ -------------
Property and Equipment, Net ...... $ 264,306 $ 221,043
------------ -------------
Depreciation expense was $14,774 and $13,459 for the three months ended November
30, 2010 and November 30, 2009, respectively, and $43,281 and $45,451 for the
nine months ended November 30, 2010 and November 30, 2009, respectively.
NOTE 4 RELATED PARTY TRANSACTIONS
NOTES PAYABLE TO RELATED PARTIES
The President of the Company previously advanced the Company $100,000 under a
demand loan bearing interest at the rate of 8% (see Note 5 - Long-term debt).
This note was approved by the Board of Directors. In June 2010 the Company
repaid the $100,000 debt to the president, including half of the associated
accrued interest. The other half was forgiven by the president and recorded as
income as an interest rate adjustment for the steady decline in rates over the
past few years.
LEASED AIRCRAFT
The Company leases an aircraft from a Company controlled by the President. The
lease payments aggregated were $5,375 for the three-months ended November 30,
2010 and 2009, and $16,125 for the nine months ended November 30, 2010 and
November 30, 2009. The original lease agreement has expired and the Company is
currently on a month-to-month basis for rental payments.
PREFERRED STOCK CONVERSION
On August 26, 2010, a director of the Company converted his 10,000 preferred
shares for 952,381 shares of Common Stock, based on a conversion price of $.105
per share totaling $100,000 purchase price. The director also relinquished the
accrued preferred stock dividends due to him totaling $68,000. These dividends
were restored to the accumulated deficit of the Company.
Page 10
NOTE 5 LONG-TERM DEBT
Long-term debt consists of the following at:
November 30, February 28,
2010 2010
------------ ------------
The President of the Company loaned the
Company, $100,000 at 8% interest. The loan was
unsecured and matures March 31,2011. The loan
was fully paid off in June 2010................... $ - $ 100,000
In January 2008, the Company entered into an
installment loan arrangement to purchase a
vehicle. The loan bears interest at the rate of
6.735% and was payable in 84 monthly installments
of $552. The loan was secured by the vehicle. The
Company paid the loan in full in April 2010....... - 27,693
In February 2009, the Company was granted a loan
by a director of the Company in the amount of
$672,663, payable in 144 monthly installments of
$5,754 at a rate of 6.00% interest. The Company
issued the Director 755,000 shares of common stock
at the price of $0.11 per share in June 2009 to
further reduce the debt. The loan will mature in
February 2021..................................... 527,652 555,003
In October 2009, the Company entered into an
equipment loan with Key Equipment Finance. The
loan bears interest at a rate of 7.50% and is
payable in 48 monthly installments of $189........ 5,940 7,270
------------ ------------
533,592 689,966
Less current portion.............................. 40,324 66,227
------------ ------------
Long-term portion................................. $ 493,268 $ 623,739
------------ ------------
Aggregate maturities as required on long-term debt at November 30, 2010 are:
2011 ........ $ 40,324
2012 ........ 42,841
2013 ........ 45,325
2014 ........ 45,990
2015 ........ 48,826
Thereafter .. 310,286
---------
$ 533,592
---------
Page 11
NOTE 6 STOCK OPTIONS
On June 6, 2007, the Board of Directors approved the issuance of 4,360,000 stock
options to key employees and directors of the Company. The options have an
expiration date of five years from the date of grant and an exercise price of
$0.06 per share. Of the 4,360,000 stock options granted, 1,690,000 vested
immediately and 890,000 stock options vest each succeeding year for three
consecutive years.
The fair value of each option grant was calculated to be $.0272 on the date of
grant using the Black-Schole Option pricing model with the following assumption
used for grants during the applicable period.
Risk free rate .. 2.4%
Volatility ...... 96.16%
Expected life ... 1.5 years
Dividend yield .. 0%
During the nine-months ended November 30, 2010, $12,511 of expense was recorded
because the Company records the expense semi-annually from the grant date. As of
November 30, 2010, there was no unrecognized compensation cost related to
unvested options.
The following table summarizes the Company's stock options:
WEIGHTED-AVERAGE
WEIGHTED-AVERAGE REMAINING
OPTIONS SHARES EXERCISE PRICE CONTRACTUAL TERM
-------------------------------- ---------- ---------------- ----------------
Outstanding at February 28, 2010 3,400,000 $ 0.06
Granted ........................ --
Exercised ...................... --
Forfeited or expired ........... (1,250,000) $ 0.06
---------- ---------------- ----------------
Outstanding at November 30, 2010 2,150,000 $ 0.06 1.5
---------- ---------------- ----------------
Exercisable at November 30, 2010 2,150,000 $ 0.06 1.5
---------- ---------------- ----------------
A summary of the status of the Entity's nonvested shares as of November 30,
2010, and changes during the nine-months ended November 30, 2010, is presented
below:
WEIGHTED-AVERAGE
NONVESTED SHARES SHARES GRANT-DATE FAIR VALUE
-------------------------------- ---------- ---------------------
Nonvested at February 28, 2010 . 770,000 $ 0.06
Granted ........................ -- --
Vested ......................... 520,000 $ 0.06
Forfeited ...................... 250,000 $ 0.06
---------- ---------------------
Nonvested at November 30, 2010 . -- --
---------- ---------------------
Page 12
NOTE 7 SALE-LEASEBACK TRANSACTION - OPERATING LEASE
On February 25, 1999, the Company entered into a sale-leaseback arrangement
whereby the Company sold its land and building at 24 Carpenter Road in Chester,
New York and leased it back for a period of 20 years. The leaseback is accounted
for as an operating lease. The gain of $449,617 realized in this transaction has
been deferred and is amortized to income in proportion to rental expense over
the term of the related lease.
At November 30, 2010 minimum future rental payments are:
Year Minimum Rental Payments
---- -----------------------
2011 ........ $ 132,504
2012 ........ 132,504
2013 ........ 132,504
2014 ........ 132,504
2015 ........ 132,504
thereafter .. 430,638
----------
$1,093,158
==========
Rent expense aggregated $33,126 for the three months ended November 30, 2010 and
2009 and $99,378 for the nine months ended November 30, 2010 and 2009.
NOTE 8 COMMITMENTS AND CONTINGENCIES
Contingencies
The Company is contingently liable to rework and fulfill a contractual
commitment of its product for a customer order. The total additional material
and labor cost to complete this work approximates $10,000. The provision has
been recorded in the Company's financial statements.
Page 13
PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
This Quarterly Report on Form 10-Q 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 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.
THREE MONTHS ENDED November 30, 2010 VS. November 30, 2009
----------------------------------------------------------
Our overall sales increased 39.6% from $898,103 to $1,254,198 quarter over
quarter, lead by a 42.5% increase in gross sales of the Freedom60 and related
accessories. Sales of this line improved from $694,209 to $989,045, quarter over
quarter. RES-Q-VAC gross sales increased 12.0%, from $169,858 to $190,248,
quarter over quarter, on the basis of higher domestic demand.
Net Operating Profit increased 166.9% from $108,788 to $290,314 for the quarter
ending November 30, 2010 as compared to the same period last year. Net income
increased 203.1% from $55,485 to $168,149.
Selling, General and Administrative increased 15.3% from $457,783 in 2009 to
$528,176 in 2010 as the result of increases in marketing expenses including
trade shows, advertising, promotions; salaries, benefits, and the design of our
new subcutaneous infusion sets which are still in development. Overhead expenses
increased beginning with the second quarter as the Company added additional
staff including a mechanical engineer and two domestic sales associates who were
not continued beyond the third quarter. Selling, General and Administrative
costs declined to 42.1% of net sales in 2010 from 51.0% of net sales in 2009.
Page 14
Cost of goods sold increased $101,280, or 32.7%, from $309,800 to $411,080 due
to an increase in sales and production payroll and related benefits. Gross
profit margin increased this quarter to 67.2% from 65.5% primarily due to cost
allocation differences and purchasing in larger volumes resulting in lower
materials costs.
Interest expense decreased by 27.6% to $8,230 in 2010 from $11,374 for the
comparative quarter in 2009 as a result of lower interest payments on long term
debt and the reduction of interest on a shareholder note paid off in June 2010.
Research and Development expenses increased $1,603 or 23.4% from $6,841 in 2009
to $8,444 in 2010 primarily due to a reallocation of salaries and expenses
associated with new product development.
Depreciation and amortization expenses increased by $1,293 from $14,891 in 2009
to $16,184 in 2010 as a result of increased investment in capital equipment.
NINE MONTHS ENDED November 30, 2010 VS. November 30, 2009
Our total sales increased 24.8% or $658,240 to $3,316,528 from $2,658,288 for
the nine month period ending November 30, 2010 led by an increase of a 38.6%
increase in gross Freedom60 sales from $1,908,062 to $2,645,239. RES-Q-VAC
declined by 18.0% from $591,667 to $485,182 primarily due to the world wide
economic downturn resulting in a softening in the EMS market.
Net income improved 55.5% to $357,801 for the nine months ended November 30,
2010 as compared to $230,149 for the same nine months in 2009. Cost of goods
sold increased $212,779 or 22.9% from $928,016 to $1,140,795 due to the increase
in sales and increases in production payroll and related benefits. Gross profit
margin increased slightly in the nine months ended November 30, 2010 to 65.6%
from 65.1%.
Selling, General and Administrative costs increased by 18.9% or $237,879 to
$1,496,899 for 2010 from $1,259,020 for 2009. This was a result of hiring
additional staff in the areas of sales, production management and engineering,
and various other additional expenses related to tradeshows.
Research and development expenses increased $5,194 or 24.9% from $20,850 in 2009
to $26,044 due to reallocation of salaries and expenses associated with new
product development.
Depreciation and amortization expenses decreased by $2,134 from $49,543 in 2009
to $47,409 in 2010 as a result of assets reaching their fully depreciated value.
Interest expense decreased by $7,180 from $35,515 in 2009 to $28,335 in 2010 as
a result of lower interest payments on long term debt, the reduction of interest
on a shareholder note paid off in June 2010.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net Cash provided from Operations was $792,888 for the nine months ended
November 30, 2010 as compared with net cash provided by operations of $132,790
for the nine months ended November 30, 2009. This is due primarily to increased
profit, a decrease in outstanding receivables and the use of our deferred tax
asset.
Page 15
In January of 2008 we were notified by The Trade Adjustment Assistance Program
of the Trade Department that our application for a grant of $150,000 was
approved for use to assist us with marketing, ISO and regulatory affairs, and
new product development. The grant matches the company on a 50-50 basis thereby
reducing our costs for these new programs by half. The Trade Adjustment
Assistance Program is a United States Government program to help manufacturing
firms adjust to foreign business competition. The program is authorized by the
Trade Act of 1974 and is administered by the U. S. Department of Commerce. The
program operates through Trade Adjustment Assistance Centers located across the
United States. The New York State area is served by the New York State Trade
Adjustment Assistance Center (NYS TAAC). The NYS TAAC is affiliated with the
Research Foundation of the State University of New York at Binghamton. Minimal
funds were used in the previous year. However, we have initiated these programs
now and intend to complete them by the end of our next fiscal year. As of
November 30, 2010 there is approximately $7,500 remaining in payment assistance
from this grant.
We believe the Freedom60 continues to find a solid following in the subcutaneous
immune globulin market and with the introduction of a new 20% IgG drug released
early this year, this market is expected to continue to increase both
domestically and internationally. We continue to experience an increase in sales
and cash during nine months ended November 30, 2010 and with these increases and
the capital we currently have, we will continue to meet or exceed the company's
financial needs for the next twelve months.
FREEDOM60
---------
The Freedom60 Syringe Infusion Pump is designed for ambulatory medication
infusions. Ambulatory infusion pumps are most prevalent in the home care market.
Other potential applications for the Freedom60 are pain control, the infusion of
specialized drugs such as IgG, and chemotherapy. The home infusion therapy
market is comprised of approximately 4,500 sites of service, including local and
national organizations, hospital-affiliated organizations, and national home
infusion organizations, and produces approximately $4.5 Billion in revenue
annually (Ref: www.nhianet.org). With insurance reimbursement in a severe
decline, there is a tremendous need for a low-cost, effective alternative to
electronic and expensive disposable IV administration devices for the home care.
The Freedom60 provides a high-quality delivery to the patient at costs similar
to gravity and is targeted for the home health care industry, patient emergency
transportation, and for any time a low-cost infusion is required.
For the home care patient, Freedom60 is an easy-to-use lightweight mechanical
pump using a 60cc syringe, completely portable, cost effective and maintenance
free, with no batteries to replace and no cumbersome IV pole. For the infusion
professional, Freedom60 delivers precise infusion rates and uniform flow
profiles providing consistent transfer of medication. A Form 510(k) Pre-market
Notification for initial design of the Freedom60 as a Class II device was
approved by the FDA in August 1994.
The Freedom60 is used to administer most antibiotics including the widely used
and somewhat difficult to administer vancomycin. We have also found a following
for Freedom60 for use in treating thalissemia with the drug desferal. In Europe
we found success in using the Freedom60 for pain control, specifically
post-operative epidural pain administration. Our European market also uses the
Freedom60 for chemotherapy and subcutaneous immune globulin.
Page 16
The Freedom60 use for Primary Immune Deficiency by injecting immune globulin
(IgG) under the skin as a subcutaneous administration has seen increased usage
especially in Europe over the past year and is expected to continue with the
introduction a new 20% solution of IgG at the beginning of this year. We have
been told by users of the Freedom60 at trade shows that this method has provided
them with vastly improved quality of life with much fewer unpleasant side
effects over the traditional intravenous route. The Freedom60 is an ideal system
for this administration since the patient is able to self-medicate at home, the
pump is easily configured for this application, and the Freedom60 is the lowest
cost infusion system available in a heavily cost constrained market. We have
begun to advertise one of the main benefits of the Freedom60 for use with IgG
which is that it operates in "dynamic equilibrium", that is, the pump finds and
maintains a balance between the pressure at the patient's sites and the rate
that the pump infuses. This balance is created by a safe, limited and controlled
pressure which adjusts the flow rate automatically to the patient's needs
providing greater convenience and lower cost for these patients.
Repro-Med Systems' objective is to build a product franchise with Freedom60 and
the sale of patented disposable tubing sets. Freedom60 uses rate-controlled
tubing with standard slide clamp and luer-lock connector on the patient end. Our
patented syringe disc connector ensures that only the Company's Freedom60 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 infusion 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. We believe
market pressures have moved to consider alternatives to expensive electronic
systems especially for new subcutaneous administrations which usually cannot be
done with gravity. For cost concerns some patients have been trained to
administer intravenous drugs through 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.
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 Freedom60 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.
Page 17
COMPETITION FOR THE FREEDOM60
-----------------------------
Competition for the Freedom60 for IgG is currently limited to electrically
powered infusion devices which are more costly and can create high pressures
during delivery which can cause complications for the administration of IgG.
However, there can be no assurance that other companies with greater resources
will not enter the market with competitive products which will have an adverse
effect on our sales.
There is the potential for new drugs to enter the market, such as using
Hyaluronidase which can facilitate absorption of IgG, making multiple site
infusions unnecessary and changing the market conditions for devices such as the
Freedom60. We believe the Freedom60 is ideal for all these new drug combinations
but there can be no assurance that these newer drugs will have the same needs
and requirements as the current drugs being used.
There can be no assurance that Medicare will continue to provide reimbursement
for the Freedom60 or they may allow reimbursement for other infusion pumps that
are currently in the market or new ones that may enter shortly, which could
adversely affect our sales into this market.
RES-Q-VAC
---------
The RES-Q-VAC Emergency Airway Suction System is a lightweight, portable,
hand-operated suction device that removes fluids from a patient's airway by
attaching the RES-Q-VAC pump to various proprietary sterile and non-sterile
single-use catheters sized for adult and pediatric suctioning. The one-hand
operation makes it extremely effective and the product is generally found in
emergency vehicles, hospitals and wherever portable aspiration is a necessity,
including backup support for powered suction systems. The disposable features of
the RES-Q-VAC reduce the risk of contaminating the 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 introduced a 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 are marketing a hospital version our latest version of the RES-Q-VAC
which contains all of our latest enhancements.
A critical component and advantage of the RES-Q-VAC is the availability of Full
Stop Protection(R) (FSP), a 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. Full Stop Protection meets the requirement of the Occupational
Safety and Health Administration. The Company has received a letter from OSHA
confirming that the RES-Q-VAC with the Full Stop Protection falls under the
engineering controls of the Blood Borne Pathogen regulation and that the
product's 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. These connectors allow
pediatric suctioning with the benefit of the Full Stop Protection 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.
Page 18
A critical advantage of our RES-Q-VAC airway suction system is versatility. With
the addition of Full Stop Protection, we created specific custom RES-Q-VAC 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. In hospitals, the RES-Q-VAC
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 is available sterile with Full Stop Protection 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, which can be left by the bedside for rapid use
during critical times.
Dental Applications - we offer a version of the RES-Q-VAC, called DENTAL-EVAC
which addresses the needs of oral surgeons for emergency back up suction during
a procedure. DENTAL-EVAC 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 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'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 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.
Page 19
COMPETITION FOR THE RES-Q-VAC
-----------------------------
We believe that the RES-Q-VAC(R) is currently the performance leader for manual,
portable suction instruments. In the emergency market, the primary competition
is the V-Vac from Laerdal. The V-Vac is more difficult to use, cannot suction
infants, and cannot be used while wearing heavy gloves such as in chemical
warfare or in the extreme cold. Laerdal had more resources than Repro-Med
Systems and had begun marketing the V-Vac before RES-Q-VAC(R) entered the
market. Another competitor is Ambu, with the Res-Cue brand pump, a product
similar to our design, made in China. We believe that the product is not as well
made or as versatile, and may not be purchased by the military segment of the
market due to lines of supply concerns. 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.
PART I ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------------
Not Applicable
PART I ITEM 4. CONTROLS AND PROCEDURES
--------------------------------------
The Company's management, including the Company's chief executive officer/
Principal financial officer, has evaluated the effectiveness of the company's
"disclosure controls and procedures "as such is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Based upon his evaluation, the chief executive officer / Principal
financial officer concluded that, as of the end of the period covered by this
report, the Company's disclosure controls and procedures were effective for the
purpose of ensuring that the information required to be disclosed in the reports
that the Company files or submits under the Exchange Act with the Securities and
Exchange Commission (the "SEC") (1) is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and (2)
is accumulated and communicated to the Company's management, including its chief
executives and chief financial officers, as appropriate to allow timely
decisions regarding required disclosure.
There have been no changes in the Company's internal control over financial
reporting during the quarter ended November 30, 2010 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Page 20
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 1A. RISK FACTORS
---------------------
Not required for Smaller reporting companies
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
-------------------------------------------------------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
----------------------------------------
None
ITEM 4. REMOVED AND RESERVED
-----------------------------
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 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
Page 21
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 14, 2011
Andrew I. Sealfon, President, Treasurer,
Chairman of the Board, Director, Chief Executive Officer
and Principal Financial Officer
Page 22