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REPRO MED SYSTEMS INC - FORM 10-K - June 1, 2010
EX-32 - CERTIFICATION - REPRO MED SYSTEMS INC ex_32-1.txt
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
For the fiscal year ended     FEBRUARY 28, 2010
Commission File Number        0-12305
REPRO-MED SYSTEMS, INC.
NEW YORK                                       13-3044880
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(State or other jurisdiction of                (IRS Employer Identification No.)
24 CARPENTER ROAD, CHESTER, NY                               10918
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(Address of principal executive offices)                   (Zip Code)
Registrant's telephone number, including area code:      (845)469-2042
Securities registered pursuant to Section 12(b) of the Act:   None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Indicate by check mark 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 if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K, is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a "large accelerated filer", an
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer [ ]                 Accelerated filer [ ]
Non-accelerated filer   [ ]                 Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]
Based on the closing sales price of August 31, 2009 the aggregate market value
of the voting and nonvoting common equity held by non-affiliates of the
registrant was $4,578,778.
The number of issued and outstanding shares of the registrant's common stock,
$.01 par value was 35,584,286 at May 1, 2010, which includes 2,275,000 shares of
Treasury Stock.
Item 1-    Business ........................................................   3
Item 1A-   Risk Factors ....................................................  13
Item 1B-   Unresolved Staff Comments .......................................  13
Item 2-    Property ........................................................  13
Item 3-    Legal Proceedings ...............................................  13
Item 4-    Removed and Reserved
ITEM 5-    Market for the Registrant's Common Equity and Related Shareholder
Matters and Issuer Purchases of Equity Securities ...............  14
Item 6-    Selected Financial Data .........................................  14
Item 7-    Management's Discussion and Analysis of Financial Condition and
Results of Operations ...........................................  14
Item 7A-   Quantitative and Qualitative Disclosures about Market Risk ......  18
ITEM 8-    Financial Statements and Supplementary Data .....................  18
ITEM 9-    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures ...........................................  34
Item 9A(T)-Controls and Procedures .........................................  34
ITEM 9B-    Other Information ..............................................  35
Item 10-   Directors, Executive Officers, and Corporate Governance .........  35
ITEM 11-   Executive Compensation ..........................................  36
ITEM 12-   Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters ......................  36
ITEM 13-   Certain Relationships and Related Transactions and Director
Independence .................................................  37
ITEM 14-   Principal Accountant Fees and Services ..........................  37
Item 15-   Exhibits and Financial Statement Schedules ......................  38
Signatures .................................................................  39
THIS ANNUAL REPORT CONTAINS CERTAIN "FORWARD-LOOKING" STATEMENTS AS THAT TERM IS
DEFINED IN THE FEDERAL SECURITIES LAWS. GENERALLY THESE STATEMENTS RELATE TO
BUSINESS PLANS OR STRATEGIES, PROJECTED OR ANTICIPATED BENEFITS OR OTHER
CONSEQUENCES OF MANAGEMENTS PLANS OR STRATEGIES, PROJECTED OR ANTICIPATED
BENEFITS FROM ACQUISITIONS TO BE MADE BY US, OR PROJECTIONS INVOLVING
ANTICIPATED REVENUES, EARNINGS OR OTHER ASPECTS OF OUR OPERATING RESULTS. THE
EVENTS DESCRIBED IN FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT
MAY NOT OCCUR. THE WORDS "MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE,"
"PROJECT," "PLAN," "INTEND," "ESTIMATE," AND "CONTINUE," AND THEIR OPPOSITES AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. WE
CAUTION YOU THAT THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE OR
EVENTS AND ARE SUBJECT TO A NUMBER OF UNCERTAINTIES, RISKS AND OTHER INFLUENCES,
MANY OF WHICH ARE BEYOND OUR CONTROL, THAT MAY INFLUENCE THE ACCURACY OF THE
STATEMENTS AND THE PROJECTIONS UPON WHICH THE STATEMENTS ARE BASED. FACTORS THAT
MAY AFFECT OUR RESULTS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS AND
UNCERTAINTIES DISCUSSED IN ITEM 6 OF THIS ANNUAL REPORT UNDER "FACTORS THAT MAY
AFFECT FUTURE RESULTS AND FINANCIAL CONDITION".
ANY ONE OR MORE OF THESE UNCERTAINTIES, RISKS AND OTHER INFLUENCES COULD
MATERIALLY AFFECT OUR RESULTS OF OPERATIONS AND WHETHER FORWARD-LOOKING
STATEMENTS MADE BY US ULTIMATELY PROVE TO BE ACCURATE. OUR ACTUAL RESULTS,
PERFORMANCE AND ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR
IMPLIED IN THESE FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO
PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER FROM NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
BUSINESS OF REGISTRANT
REPRO-MED Systems, Inc. ("REPRO-MED", or "RMS Medical Systems" or the
"Company"), was incorporated in the State of New York in March of 1980. The
Company designs, manufactures and markets proprietary medical devices primarily
for emergency medical applications and ambulatory infusion therapy. These
products are regulated by the FDA. The Company's development and marketing focus
are primarily concentrated on the RES-Q-VAC(R) and the FREEDOM60(R) products.
Repro-Med Systems, Inc. was incorporated under the laws of the State of New York
in March 1980. The corporate offices are located at 24 Carpenter Road, Chester,
New York 10918. The telephone number is 845-469-2042, fax is 845-469-5518 and
the Internet site is www.rmsmedicalproducts.com.
FREEDOM60(R) SYRINGE INFUSION SYSTEM
The FREEDOM60 uses an innovative "engine" to create a constant pressure drive
system which we believe results in substantially greater safety, reliability,
and an overall higher quality infusion than other devices on the market - all at
a lower cost. The basic drive mechanism used in the FREEDOM60 represents the
first of a line of products, which we intend to develop to broaden the product
applications and appeal.
FREEDOM60(R) uses rate-controlled tubing with standard slide clamp and luer-lock
connector on the patient end. Our patented luer disc connector insures that only
the Company's FREEDOM60(R) tubing sets will function with the pump.
Non-conforming tubing sets, without the patented disc connector, are ejected
from the pump to prevent the danger of an overdose or runaway pump from injuring
the patient. Repro-Med Systems' objective is to build a product franchise with
FREEDOM60(R) and the sale of patented disposable tubing sets.
Proprietary technology employed in the FREEDOM60 uses constant pressure to
administer drugs. FREEDOM60 avoids an important problem faced by electronic
pumps currently on the market which employ constant flow mechanisms that result
in potentially dangerous, high pressures placed on indwelling catheters or under
the skin. In order to protect the patients, these pumps must contain an
overpressure sensor to shut the pump off when a potentially threatening pressure
is detected. Some of these electronic pumps can generate extremely high
pressures exceeding 60psi before the over pressure system will activate. Also
with these systems, the alarm can be falsely triggered, and the administration
halted until a health professional can verify that the infusion is in fact safe
and the pump may be reactivated. In either case, the patient is at risk from
damaging pressures or not receiving the medication required.
Other unsafe conditions of conventional equipment include runaway
administrations; overdose due to programming errors or pump failure, and over
pressure resulting in burst blood vessels or failed internal access devices. The
expanded use of the FREEDOM60 demonstrates that the FREEDOM60 eliminates these
potential outcomes and insures a safe, constant, controlled infusion. Electronic
devices will increase infusion pressure while attempting to continue an infusion
at the programmed rate, while the FREEDOM60's design maintains a safe constant
pressure and thereby automatically reduces the flow rate accordingly if any
problems of administration occur.
The Freedom60 Syringe Infusion Pump is designed for ambulatory medication
infusions. Ambulatory infusion pumps are most prevalent in the home care market
although we believe there is potential in the hospital setting as well. 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. A revised Form 510(k) has been filed in
January 2009 with the FDA to update the Freedom60 with the use of a new
proprietary needle delivery system. Due to recent changes in FDA guidelines,
this application was not accepted and we are currently in negotiations with FDA
to revise and submit a new application.
The Company also designed and manufactured the Freedom60-FM, an enhanced version
of the Freedom60 which contains an electronic flow monitor system that provides
occlusion and end of infusion alarm. This product is directed at nursing homes,
hospitals and pediatric ambulatory applications where alarms are generally
required for nursing acceptance. Nurses also appreciate being able to visualize
the drug volume by reading the scale on the syringe.
We have expanded the use of the Freedom60 to cover most antibiotics including
the widely used and somewhat difficult to administer vancomycin. We have also
found a following for Freedom60 for use in treating thalissemia with the drug
desferal. In Europe we 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.
The Freedom60 use for Primary Immune Deficiency by injecting immune globulin
(IgG) under the skin as a subcutaneous administration (SCIG) continued to
increase usage during 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 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
promote 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 what a patient's subcutaneous tissues are able to absorb and
what 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 a reliable, faster and a more comfortable administration with fewer
side effects 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 insures 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.
IMPORTANCE OF INSURANCE REIMBURSEMENT TO FREEDOM60 SALES
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). It was the determination of the Centers for Medicare &
Medicaid Services 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 code
significantly increases the reimbursement for the Freedom60 for billable syringe
pump applications approved by Medicare. Current approved uses under Medicare
include among others, subcutaneous immune globulin, antivirals, antifungals, and
chemotherapeutics. In June 2007 Medicare issued a letter of clarification
stating in part:
"The Freedom60 Syringe Infusion Pump is the only allowable pump to be billed
with the Subcutaneous Immune Globulin (SCIG). The code for this pump for dates
of service 1/1/00 - 5/16/07 is E0780. For dates of service on or after 5/17/07
the correct code is E0779 per SADMERC. The items being billed must be supported
by corresponding documentation. All other pumps or modifiers will result in a
denial".
At this time we believe we are the only Medicare approved device for SCIG.
ECONOMIC BENEFITS OF FREEDOM60(R) PUMP AND DISPOSABLE SALES
In the past we marketed the pump priced at a discount to promote sales of tubing
sets. We now market pumps at fair market value. Originally when the Freedom60
was introduced, we had envisioned the revenues being primarily derived from the
tubing set sales due to the market we were penetrating and the medical practices
of the time. In the current market we have shifted focus from the generic market
to a specialty market, and tubing set usage for all markets have been revised
due to cost considerations. We have adjusted to a new economic model by
re-pricing the pump and the tubing sets accordingly.
We have sold approximately 13,300 pumps since March 2000 and approximately 3,000
pumps during the past fiscal year. Most of our current sales are made directly
to health care providers, although we maintain distributors in both the domestic
and foreign markets. Although it is impossible to determine exactly how many
pumps are in operation at any given time, we estimate that, after allowing for
lost pumps and those no longer in use by the purchaser, there are approximately
8,900 FREEDOM60(R) pumps currently in operation. The FREEDOM60(R) pump is
designed for a minimum use of 4,000 times which at our list price is amortized
at a low $.13 per use. The tubing sets currently have an average price of $5.11.
We estimate that each pump uses an average of four to six tubing sets per month.
However, if the pump is operated as often as 48 times in a month, which is
probably the upper limit for antibiotic use, then the anticipated pump life
expectancy would be over six and half years.
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.
NEW PRODUCT ENHANCEMENTS FOR THE FREEDOM60
During January 2010, a new subcutaneous immune globulin called Hizentra(R) with
a greater concentration was approved by the FDA. We have performed significant
testing of the new drug with the Freedom60 and have been approved by the drug
company for use with their drug. Based on initial reactions, the new formulation
appears to be an improved drug at higher concentrations, and is expected to
replace the previous offerings. We believe that Hizentra will create additional
opportunities for the Freedom60 system for YE 2011.
We have been developing our own needle administration sets for subcutaneous
immune globulin, which incorporates many enhanced features that we believe will
address many of the issues faced by current offerings. Due to the introduction
of Hizentra with its increased viscosity, the new needle administration sets
were designed with improved flow characteristics. Our new needle set design has
very low fluid resistance creating the ability for rapid administrations with
improved safety. As mentioned previously, we are negotiating with FDA and plan
to submit an FDA 510(k) application for the new set and updated performance
features of the Freedom60.
There can be no assurance that we will be able to enter the market during the
summer of YE 2011 as planned, that we will be able to deliver the new needle set
at a competitive price point, or that the set will end up being accepted by the
RES-Q-VAC PORTABLE MEDICAL SUCTION
The RES-Q-VAC(R) Emergency Airway Suction System is a lightweight, portable,
hand-operated suction device that removes fluids from a patient's airway by
attaching the RES-Q-VAC(R) pump to various proprietary sterile and non-sterile
single-use catheters sized for adult and pediatric suctioning. The one-hand
operation makes it extremely effective and the product is generally found in
emergency vehicles, hospitals and wherever portable aspiration is a necessity,
including backup support for powered suction systems. The disposable features of
the RES-Q-VAC(R) reduce the risk of contaminating the health professional from
HIV or SARS when suctioning a patient or during post treatment cleanup. All of
the parts that connect to the pump are disposable.
In 2009 we introduced a new updated version called RES-Q-VAC ULTRA which comes
with our FSP filter, new pediatric connectors, new graduated canister, new adult
catheters, and new convenient carry pouch. It is also available with a patent
pending, fully malleable, portable LED white light source which is attached to
the top of the canister system and provides illumination for the medical
professional during night time or low light conditions.
A critical component and advantage of the RES-Q-VAC system is the Full Stop
Protection, (FSP) 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 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 Products use would fulfill the regulatory requirements.
The latest concerns are for diseases that are easily transmitted by small
aerosolized droplets such as Asian Bird Flu, Swine flu, and resistant
tuberculosis. Other concerns are hepatitis, HIV among others.
On April 29, 2003, the Centers for Disease Control (CDC) issued additional
guidelines for the control of SARS (Sudden Acute Respiratory Syndrome), which
requires all suction systems to have filtration equivalent to a HEPA filter to
prevent the spread of this disease. At the current time, we believe that the
RES-Q-VAC(R) with Full Stop Protection(R) is the only portable device to comply
with the CDC directives.
With the new connectors added to our pediatric catheters, which allow them to
connect directly to the adult canisters with FSP(R), enable pediatric suctioning
with the benefit of the Full Stop Protection(R) device as well as with sterile
catheters. Many infants are born with contagious diseases and the new system
eliminates this concern among paramedics during an emergency delivery.
One advantage of our RES-Q-VAC(R) airway suction system is versatility. With the
addition of Full Stop Protection(R), we created specific custom RES-Q-VAC(R)
kits for various vertical markets:
Emergency Medicine - we make several special kits for emergency use, which
contain all the catheters necessary to treat adults as well as infants or
children. These first responder kits are generally non-sterile. We also have
special attachments available for the advanced paramedic to treat patients who
are intubated.
Respiratory - in-home care, long term care, situations requiring frequent
suctioning such as cystic fibrosis patients, patients with swallowing disorders,
elderly, patients on ventilators and with tracheostomies all benefit from the
portability, cost and performance of the RES-Q-VAC(R). In hospitals, the
RES-Q-VAC(R) provides emergency back up due to power loss or breakdown of the
wall suction system.
Hospital Use - for crash carts, the emergency room, patients in isolation,
moving patients throughout the hospital (e.g., from ICU to Radiology) and backup
for respiratory, RES-Q-VAC(R) is available sterile with Full Stop Protection(R)
for the ultimate in performance and to meet all the OSHA regulations and CDC
guidelines for use in treating patients in isolation, and in any location.
Hospitals are required under the EMTALA regulations to provide emergency
treatments to patients anywhere in the primary facility and up to 250 yards
away. The RES-Q-VAC insures full compliance with these regulations and helps
minimize unfavorable outcomes and potential lawsuits there from. We provide
special hospital kits, which are fully stocked to meet all hospital applications
for both adult and pediatric.
Nursing homes, hospice, sub-acute - we provide special configurations for dining
areas, portable suctioning for outside events and travel. Chronic suction can be
accommodated with RES-Q-VAC(R), which can be left by the bedside for rapid use
during critical times.
Dental applications - we offer a version of the RES-Q-VAC(R), called
DENTAL-EVAC(R) which addresses the needs of oral surgeons for emergency back up
suction during a procedure. DENTAL-EVAC(R) is supplied with the dental suction
attachments such as saliva ejector and high volume evacuator.
Military Applications - Due to its light weight, portability, and rapid
deployment, we believe that the RES-Q-VAC(R) is ideal for any military
situation. In addition, exposure to chemical weapons of mass destruction such as
Sarin is best treated by rapid, aggressive, and repeated suctioning. We believe
that the RES-Q-VAC(R)'s compact size, powerful pump, and full protection of the
user from any contamination, gives us a competitive edge in this market.
We are actively pursuing a direct sales effort into the hospital market and
continue our effort into nursing homes working with direct sales and a regional
distributor in the respiratory market We also work with a national distributor
who is well represented in the hospital market. Due to power outages, hurricanes
such Katrina and other disasters; there is interest for the RES-Q-VAC for these
markets. In the hospital, the RES-Q-VAC is used on crash carts, emergency room,
patients in isolation, for tracheotomy patients and to meet new hospital
regulations such as EMTALA. Hospitals also are cognizant of infectious disease
control and we continue to make them aware of our Full Stop Protection(R)
filter, which protects the users from any contamination from overflow and traps
all pathogens inside the suction container. This feature is also a requirement
of the Occupational Safety and Health Administration under OSHA 29CFR 1910.1030
- Occupational Exposure to Blood borne Pathogens. The RES-Q-VAC(R) is the only
hand-held non-electric suction system with sterile catheters for infants, large
catheters for adults, and meets the intent of the OSHA requirements with the
Full Stop Protection(R). The Company has received a letter from OSHA confirming
that the Full Stop Protection(R) falls under the engineering controls of the
Blood borne Pathogen regulation and therefore would be required by any employer
of medical personnel to protect their employees from potentially infectious
materials. The Centers for disease control have issued Guidelines for medical
personnel for the treatment of patients with SARS, which include the
recommendation to employ suction devices containing HEPA type filtration on the
output to prevent the spread of this disease. We believe RES-Q-VAC(R) is the
only hand-held portable suction system, which meets this requirement.
RES-Q-VAC DISTRIBUTION
RES-Q-VAC(R) is sold domestically and internationally by emergency medical
device distributors. These distributors generally sell to the end user and
advertise these products in relevant publications and in their catalogs. We have
begun marketing the new system with a national hosptial distributor and with a
regional respiratory distributor with representation into the hospital market
through the respiratory departments.
OSHA AND CDC REQUIREMENTS
The Full Stop Protection(R) meets the requirement of the Occupational Safety and
Health Administration as described below. The Company has received a letter from
OSHA confirming that the RES-Q-VAC(R) with the Full Stop Protection(R) falls
OSHA 29CFR 1910.1030 - Occupational Exposure to Blood borne Pathogens requires
that employers of " ... emergency medical technicians, paramedics, and other
emergency medical service providers; fire fighters, law enforcement personnel,
and correctional officers ... must consider and implement devices that are
appropriate [to contain blood borne pathogens], commercially available and
effective." These first responders risk exposure to serious disease, and the
employers may risk OSHA violations and lawsuits if they fail to consider
protective measures such as Repro-Med's Full Stop Protection(R) for
RES-Q-VAC(R). The Company has received a letter from OSHA indicating the
RES-Q-VAC(R) meets the intent of this regulation.
COMPETITION FOR THE RES-Q-VAC(R)
We believe that the RES-Q-VAC(R) is currently the performance leader for manual,
portable suction instruments. In the emergency market, the primary competition
is the V-Vac from Laerdal. The V-Vac is more difficult to use, cannot suction
infants, and cannot be used while wearing heavy gloves such as in chemical
warfare or in the extreme cold. Laerdal had more resources than Repro-Med
Systems and had begun marketing the V-Vac before RES-Q-VAC(R) entered the
market. Another competitor is Ambu, with the Res-Cue brand pump, a product
similar to our design, made in China. We believe that the product is not as well
made or as versatile, and may not be purchased by the military segment of the
market due to lines of supply concerns. With additional capital, we believe we
will continue to maintain and build market share and gain a significant portion
of the electric suction pump market. We believe that the addition of Full Stop
Protection(R) substantially separates the RES-Q-VAC(R) from competitive units,
which tend to leak fluid when becoming full or could pass airborne pathogens
during use. There is a heightened concern from health care professionals
concerning exposure to disease and we believe the RES-Q-VAC(R) provides improved
protection for these users.
We purchased the Gyneco product line in 1986. Products included the Masterson
Endometrial Biopsy Kit for in-office biopsy sampling procedures and the Thermal
Cautery System used for tubal ligation procedures.
Masterson Endometrial Biopsy Kit is a self-contained unit that offers a quick
and easy procedure for in-office tissue sampling. The powerful vacuum pump is
easily operated with one hand. The pump is supplied with sterile disposable
curettes and specimen containers presented in a kit.
The Thermal Cautery System is designed to provide a safe, reliable and effective
method of female sterilization. The unit is small, compact and portable. A
rechargeable battery supplies power. The unit uses disposable components that
include the cautery hook assembly, cannula and trocar stylette.
Historically, we have used OEM profits to partially fund internal product
development that has resulted in RES-Q-VAC(R) and FREEDOM60(R). In the past OEM
sales have been as high as 70% of sales (1996). As the company transitioned from
OEM sales to our own higher margin proprietary sales, the OEM component has
decreased substantially. In 2010 and 2009, contract manufacturing declined in
sales from 3.61% in 2009 to 1.33% of sales, in year ended 2010. The Company has
transitioned from these contracts to building and selling its own proprietary
products due to the much-improved margins associated with directly marketed
We are also in various stages of development of other additional proprietary
medical devices. Thus, we have products currently on the market, new products in
development to be marketed and long range products to support and enhance future
growth. Research and Development efforts have been curtailed as we directed most
of our resources to marketing and sales of our existing products.
Freedom60 systems are sold through both direct sales efforts concentrated on
large national accounts and a network of medical device distributors.
Gynecological instruments are sold from the corporate offices primarily through
repeat business. Distribution channels for the products are those generally
common to their respective markets. In recent years our emergency medical
products are sold through a wide network of domestic and international
distributors in 31 countries.
The domestic emergency medical market has softened somewhat due to a decrease in
Federal reimbursement to the states and cities for firefighters, police and
emergency services. We have concluded that we can have more effective market
penetration with major master distributors who are able to better support our
We already have master distributors in United Kingdom, Norway, Sweden, Denmark,
Iceland, Finland, Estonia, Latvia, and Lithuania. We believe that one main
distributor will be more predisposed to advertising, promotion, and building the
product franchise in each market. In return, we will be able work more closely
with the distributors and be able to hold them accountable for the sales in each
Additional new markets we have recently sold include schools and hospital-based
respiratory centers. We are also planning mailings into those markets. In the
school market, we have been informed that any school with a swimming pool is
normally required to have suction equipment available. In addition, many schools
are installing automatic electronic defibrillators (AED's) for which suction is
mandatory in more than 50% of uses for this device.
We continue to support both of our main product lines at both National and
International trade shows. In November, we exhibited at Medica in Dusseldorf,
Germany; the world's largest medical products trade show. In March 2010 we
exhibited at the EMS Today Conference & Exposition in Baltimore, the NHIA show
was attended in Baltimore in March of 2010. In May of 2010 we attended the INS
show in Ft Lauderdale, Florida. We have also reserved our space for the Medica
trade show scheduled for November 2010.
The table below presents the product mix for the last two fiscal years.
2010        2009
OF SALES    OF SALES
--------    --------
Infusion Therapy ............     75.63%      67.62%
Medical Suction .............     21.86%      27.34%
Gynecological Instruments ...      1.14%       1.43%
Contract Manufacturing ......      1.33%       3.61%
Other .......................      0.04%
MANUFACTURING AND EMPLOYEES
The Company's employees perform at the Company's facility electromechanical
assembly, calibration, pre- and post-assembly quality control inspection and
testing, and final packaging for all products. Products are assembled using
molded plastic parts acquired from several U.S. vendors and one supplier located
in Taipei, Taiwan. The availability of parts has not been a problem. The cost
and time required to fabricate molds to manufacture parts can slow the
development of new products and might temporarily limit supply if we determine
it is advisable to seek alternate sources of supply for existing products. Our
policy has been to have multiple vendors as suppliers, where practicable, that
also offer mold-building capabilities as a service.
As of February 28, 2010, we employed 32 employees, 24 were assigned to
manufacturing operations, 5 to sales and customer support, 1 to administrative
functions, 1 to quality assurance functions, 1 Vice President of Operations
(responsible for manufacturing, warehouse and procurement operations), and 1
Executive Officer. The Company is dependent on the services of Andrew Sealfon
who serves as President, head of Research and Development and is also
instrumental in sales, marketing and finance. The Company does not have
insurance on the life of Andrew Sealfon and may not be able to replace him if
the need arose.
REGULATIONS GOVERNING THE MANUFACTURING OPERATIONS
The Food, Drug and Cosmetic Act governs the development and manufacturing of all
medical products. The Act requires us to register the facility, list devices,
file notice of intent to market new products, track the locations of certain
products and to report any incidents of death or serious injury relating to the
products with the FDA. We are subject to civil and criminal penalties and/or
recall seizure or injunctions if we fail to comply with regulations of the FDA.
Our last filing of Form 510(k) with the FDA was for the Restore (R), approved in
We are required to comply with federal, state and local environmental laws;
however, there is no significant effect of compliance on capital expenditures,
earnings or competitive position. We do not use significant amounts of hazardous
materials in the assembly of these products.
Periodically we are subject to inspections and audits by FDA inspectors. During
the year ended February 28, 2006, we were subject to a routine QSR review by the
FDA. The FDA inspection did not find any violations and no DD483 was issued. As
a result of FDA audits, the Company is always subject to further audits and
could be impacted by adverse findings.
We have filed and received U.S. protection for many of our products and in some
cases, where it was no longer deemed economically beneficial; we have allowed
certain patent protections to lapse. The RES-Q-VAC(R), an emergency medical
product, is susceptible in the international market to imitation. In 2002 a
competitor had introduced a competitive product to the RES-Q-VAC(R) into the
market. We responded with the introduction of new innovative features for the
RES-Q-VAC(R) that enhanced the product and placed well above the competition in
On June 10, 2003, we received a patent #6,575,946 for our new Full Stop
Protection(R). This addition to the RES-Q-VAC(R) system prevents any fluids from
exiting the system. It also serves to trap airborne and fluid pathogens. We
believe that the addition of the flow block design substantially separates the
RES-Q-VAC(R) from competitive units, which tend to leak fluid when becoming full
or could pass airborne pathogens during use. There is a heightened concern from
health care professionals concerning exposure to disease and the new
RES-Q-VAC(R) provides improved protection for these users.
protective measures such as Repro-Med's Full Stop Protection(R) for RES-Q-VAC(R)
The Company has received a letter from OSHA indicating the RES-Q-VAC(R) meets
the intent of this regulation.
On April 29, 2003, the Centers for Disease Control issued additional guidelines
for the control of SARS (Sudden Acute Respiratory Syndrome), which requires all
suction systems to have filtration equivalent to a HEPA filter to prevent the
spread of this disease. At the current time, we believe that the RES-Q-VAC(R)
with Full Stop Protection(R) is the only portable device to comply with the CDC
directives.
On August 9, 2005, a patent was issued for a new mechanical variable flow rate
controller. Used with our FREEDOM60(R) Syringe Infusion System, this device
enables the user to select from a number of flow rates while using just one set
of tubing, allowing flow rates to be changed during the course of a single
infusion to better meet the needs of the patient. The device may be applied to
other infusion systems as well. We have not yet determined a production or
marketing strategy for this product.
We also hold patent #5,336,189 for a "Combination IV Pump & Disposable Syringe"
which confers a unique syringe to IV pump interface design. This patent is for
the FREEDOM60(R) Infusion System, an infusion therapy product. The cost of
filing and maintaining applications has deterred pursuing international patents.
The patent position of small companies is highly uncertain and involves complex
legal and factual questions. Consequently, there can be no assurance that patent
applications relating to products or technology will result in patents being
granted or that, if issued, the patents will afford protection against
competitors with similar technology. Furthermore, some patent licenses held may
be terminated upon the occurrence of certain events or become non-exclusive
after a specified period. There can be no assurance that we will have the
financial resources necessary to enforce any patent rights we may hold.
Our product names are registered trademarks. There can be no assurance that
patents or trademarks will provide competitive advantages for the products
covered or that they will not be challenged or circumvented by competitors.
Not applicable as the Company is a smaller reporting Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTY
We currently rent a masonry and steel frame building erected on 3.27 acres of
land located at 24 Carpenter Road, Chester, New York 10918. This facility is our
only location and is used as our headquarters and manufacturing operations.
Currently we are in year 11 of a 20-year lease and are responsible for all
repairs, maintenance and upkeep of the space occupied. The terms of the lease
call for monthly lease payments of $11,042, we also contribute payments of 65%
of the building's annual property taxes, amounting to $50,527 for the year ended
February 28, 2010.
ITEM 3. LEGAL PROCEEDINGS
We are, from time to time, subject to claims and suits arising in the ordinary
course of business, including claims for damages for personal injuries, breach
of management contracts and employment related claims.
ITEM 4. REMOVED AND RESERVED
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
We are authorized to issue 50,000,000 shares of Common Stock, $.01 par value. As
of February 28, 2010, 35,584,286 shares were issued and outstanding and there
were approximately 1,062 holders of record.
Our Common Stock is traded in the over-the-counter market and is quoted through
the National Daily Quotation Service. The following table sets forth the high
and low closing bid quotations for the Common Stock as reported by Commodity
Systems, Inc. for the periods indicated. These quotations do not include retail
mark-up, markdown or commission and may not represent actual transactions.
HIGH      LOW
----      ---
2010 QUARTER ENDED
February 28, 2010 ......     $0.23     $0.11
November 30, 2009 ......     $0.30     $0.14
August 31, 2009 ........     $0.20     $0.12
May 31, 2009 ...........     $0.19     $0.08
On February 2, 1993 we issued 10,000 shares of 8% Cumulative Convertible
Preferred Stock in a private placement for $100,000. We are obligated to pay
semi-annual dividend payments of $4,000 until conversion by shareholders or
redemption by us. The 10,000 shares of Cumulative Convertible Preferred Stock
are convertible to 185,185 shares of Repro-Med common stock at $0.54 per share.
The 10,000 shares of Cumulative Convertible Preferred Stock are convertible
based on the following formula: multiply the number of shares of Preferred Stock
to be converted by $10.00, divide the result by the conversion price of $0.20
per share (or by the conversion price as last adjusted and in effect at the date
any shares are surrendered for conversion). The Conversion Price shall increase
by $.02 for each year that the Preferred Stock is outstanding. The current
conversion price is $0.54
We have not declared or paid any cash dividends on our Common Stock and do not
anticipate that any dividends will be paid in the foreseeable future. During the
fiscal year ended February 28, 2010, dividends on the Convertible Preferred
Stock were accrued in the amount of $8,000 on the balance sheet.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report on Form 10-K contains certain "forward-looking" statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995) and information relating to us that are based on the beliefs of the
management, as well as assumptions made by and information currently available.
Our actual results may vary materially from the forward-looking statements made
in this report due to important factors such as, recent operating losses,
uncertainties associated with future operating results, unpredictability related
to Food and Drug Administration regulations, introduction of competitive
products, limited liquidity, reimbursement related risks, government regulation
of the home health care industry, success of the research and development
effort, expanding the market of FREEDOM60(R), availability of sufficient capital
to continue operations and dependence on key personnel. When used in this
report, the words "estimate," "project," "believe," "anticipate," "intend,"
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements reflect current views with respect to future events
based on currently available information and are subject to risks and
uncertainties that could cause actual results to differ materially from those
contemplated in such forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. These statements involve risks and uncertainties with respect
to the ability to raise capital to develop and market new products, acceptance
in the market place of new and existing products, ability to penetrate new
markets, our success in enforcing and obtaining patents, obtaining required
Government approvals and attracting and maintaining key personnel that could
cause the actual results to differ materially. Repro-Med does not undertake any
obligation to release publicly any revision to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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.
Inventories consist of purchased parts and assembled units and are stated at the
lower of average cost or market value. Average cost is calculated using a
rolling average based upon new purchases and quantities.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Important estimates include but are not limited to, asset lives,
valuation allowances, inventory and accruals.
In determining the allowance for doubtful accounts the Company analyzes the
aging of accounts receivable, historical bad debts, customer creditworthiness
and current economic trends.
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 collectability of
the sales price is reasonably assured. The Company's revenue stream is derived
from the sale of an assembled product. Other service revenues are recorded as
the service is performed. Shipping and handling costs are generally billed to
customers and are included in sales. The Company does not accept return of goods
shipped unless it is a Company error. The Company does not grant sales
allowances other than an occasional 1% discount for payments made within 30
days. The only credits provided to customers are for defective merchandise and
sales incentives are occasional advertising in customer catalogues.
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.
Overall sales for the year ending February 2010 increased 9.8% to $3,774,873
from $3,439,110 for the same period least year.
The Freedom60 continues to lead our sales increases with an overall improvement
of 23.3% going from $2,274,756 in YE 2009 to $2,805,548 for the current year.
The increase is due to additional sales for use with immune globulin,
antibiotics, and to a lesser extent, new international sales coming in
approximately mid year. We have concentrated the majority of our efforts in the
Freedom60 line, specifically towards the subcutaneous immune globulin (SCIG)
market. This sales increase was due to our direct efforts, and the
reimbursement, which was increased significantly 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 (trained) and sold virtually every major SCIG provider in the
domestic market. Reflected in the sales year to date is our new distributor in
Finland who has begun selling the Freedom60 in the Scandinavian market since
July. 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, we expect many of the
SCIG users will see benefit in using the Freedom60 system for other uses, such
as antibiotics, chemotherapeutics and pain medications.
Our Net income for the year ending February 28,2010 was $889,444 as compared to
Net income of $1,030,855 for the previous year. This was primarily due to an
increase in the investment for our new products, increased domestic and
international marketing expenses, and a decrease in the income tax benefit from
$306,000 to $226,984 in 2010.
We recorded deferred tax assets in the amount of $532,984 and $689,520 as of
February 28, 2010 and 2009, respectively. The deferred tax assets have been
offset by valuation allowances of $0 and $383,520 as of February 28, 2010 and
2009, respectively. Management based the valuation allowance calculations on the
prospect of future profitability. The amount of $532,984 we recognized as of
February 28, 2010 represents the full amount of tax benefits available.
RES-Q-VAC(R) sales decreased overall by 7.6% to $ 871,814 from $943,743 in part
due to the continued world economic softening. We intend to continue to
introduce the RES-Q-VAC to the hospital markets, and further our emergency
medical sales with the new RES-Q-VAC ULTRA products. We also have begun a new
marketing initiative for RES-Q-VAC in the hospital, nursing home market, dental
sales, and prisons, and sales to the government and military.
We continue to focus our sales and marketing efforts mainly on our two core
product lines, the FREEDOM60(R) Syringe Infusion System and the RES Q VAC(R)
Medical Suction System. This includes mail marketing, telemarketing, trade
shows, and increased on site sales calls.
Combined sales of our non-core product lines (Gyneco and contract manufacturing)
decreased by 44.5% or $76,400
Cost of goods sold increased from $1,243,387 for year ended February 28, 2009 to
$1,263,406 for the current year primarily as a result of increased sales. Gross
profit margin for the year ended February 28, 2010 increased slightly to 66.5%,
as compared with 63.8% for the previous year primarily as a result of increased
sales. Selling, General & Administrative Expenses (SG&A) increased by $382,307
year over year from $1,314,916 to $1,697,223 due to additional marketing
expenses associated with our increase in sales and general increases in payroll.
Stock based compensation decreased this year to $19,312 from $24,209 in the year
ended 2009.
Research and development expenses increased from $22,441 to $27,921 primarily
due to increased labor costs.
Depreciation and amortization expense decreased by 18.3% to $64,804 during the
year ended February 28, 2010 as compared to $79,355 for the previous year 2009.
Interest expense decreased from $51,680 to $47,504 due to loan consolidations,
lower interest rates, and elimination of higher interest debts.
Our net operating profit for the year ended February 28, 2010 was $721,519 as
compared with $779,011 for the previous year. For the year ended February 28,
2010 Net Cash provided from Operations was $382,298 as compared with $528,180
for the prior year. This change of $145,882 was due primarily to increased SG&A
At the end of fiscal year 2010, the net working capital improved to $1,983,597
from $1,288,733 due to the results of operations, the recognition of a portion
of the deferred tax asset, reduction in accounts payable, accrued expenses and
issuance of stock for current portion of director loan.
In January of 2008 we were notified by The Trade Adjustment Assistance Program
of the Trade Department that our application for a grant of $150,000 was
approved for use to assist us with marketing, ISO and regulatory affairs, and
new product development. The grant matches the company on a 50-50 basis thereby
reducing our costs for these new programs in half. The Trade Adjustment
Assistance Program is a United States Government program to help manufacturing
firms adjust to foreign business competition. The program is authorized by the
Trade Act of 1974 and is administered by the U. S. Department of Commerce. The
program operates through Trade Adjustment Assistance Centers located across the
United States. The New York State area is served by the New York State Trade
Adjustment Assistance Center (NYS TAAC). The NYS TAAC is affiliated with the
Research Foundation of the State University of New York at Binghamton.
At the end of the current fiscal year there is approximately $55,000 remaining
in payment assistance from this grant.
Accounts Receivable, net of reserves, increased at February 28, 2010 to $654,960
as compared to $488,742 for the previous year as a result of our increased
sales. Domestic sales are made primarily on net 30-day payment terms. A variety
of terms continue to be employed for export sales including cash prepayments and
net 45 days to allow for increased delays due to transportation and
communications. As of February 28, 2010, 76% of Accounts Receivable were current
or less than 30 days past due, 12% were at 30-60 days and 12% were over 61 days.
Prepaid expenses and other receivables decreased to $67,611 from $73,197.
Expenditures for capital equipment in 2010 were $51,989 and patent costs were
$4,169 on filings for new products that initiated during the year.
Approximately ten years ago we agreed to rework approximately 13,000 units of a
product for an OEM customer order, which was to be completed in prior years. The
total additional material and labor cost to complete this rework approximates
$72,188 of which we have $60,344 in inventory.
call for a monthly lease payment of $11,042 per month, we also contribute
payments of 65% of the building's annual property taxes, amounting to $50,527
for the year ended February 28, 2010
We believe the Freedom60 continues to find a solid following in the subcutaneous
immune globulin market and this market is expected to continue to increase both
domestically and internationally. We continue to experience an increase in sales
and cash flow during the year ended February 28, 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.
ITEM 7A. QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Francis J. Merkel, CPA
Joseph J. Quinn, CPA, CVA
Daniel J. Gerrity, CPA
Mary Ann E. Novak, CPA
MMQ
McGrail Merkel Quinn & Associates, P. C.
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
To the Board of Directors and Stockholders
Chester, New York
We have audited the accompanying balance sheets of Repro-Med Systems, Inc.
as of February 28, 2010 and 2009, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Repro-Med Systems, Inc. as
of February 28, 2010 and 2009, and the results of their operations and their
cash flows for the years then ended in conformity with U.S. generally accepted
accounting principles.
We were not engaged to examine management's assertion about the
effectiveness of Repro-Med Systems, Inc.'s internal control over financial
reporting as of February 28, 2010 included in Item 9A(T) and, accordingly, we do
not express an opinion thereon.
/S/ MCGRAIL MERKEL QUINN & ASSOCIATES, P.C.
RSM McGladrey Network
An Independently Owned Member
Clay Avenue Professional Plaza, 1173 Clay Avenue, Scranton, PA 18510
570 961-0345 Fax: 570 961-8650
www.mmq.com
FEBRUARY 28,  FEBRUARY 28,
2010          2009
------------  ------------
Cash .............................................  $   813,383   $   519,209
Accounts receivable less allowance for doubtful
accounts of $30,823 and $26,783 forat February
28, 2010 and February 28, 2009, respectively ....      654,960       488,742
Inventory ........................................      634,584       621,849
Prepaid expenses .................................       67,611        73,197
Deferred Tax Asset Net, net of valuation allowance
of $0 at February 28, 2010 and February 2009 ....      308,250       306,000
-----------   -----------
Total Current Assets ...........................    2,478,788     2,008,997
PROPERTY & EQUIPMENT, less accumulated depreciation
of $1,256,617 and $1,197,359 at February 28, 2010
and February 28, 2009 respectively ................      221,043       228,312
OTHER ASSETS:
Patents, net of accumulated amortization of
$96,745 and $91,198 at February 28, 2010 and
February 28, 2009, respectively .................       34,958        36,335
Goodwill .........................................            -         8,609
Security deposit .................................       28,156        28,156
Deferred tax asset, net of valuation allowance of
$0 and $383,520 at February 28, 2010 and February
28, 2009 respectively ...........................  $   224,734   $         -
Total Other Assets .............................      287,848        73,100
TOTAL ASSETS .......................................  $ 2,987,679   $ 2,310,409
===========   ===========
The accompanying notes are an integral part of these Financial Statements.
Note payable - current portion ...................  $    29,483   $     4,600
Notes payable to related parties - current portion       36,744       117,660
Deferred capital gain - current portion ..........       22,481        22,481
Accounts payable .................................       80,717       219,477
Accrued expenses .................................      118,740       142,541
Accrued interest .................................       54,183        46,183
Accrued preferred stock dividends ................       68,000        60,000
Accrued payroll and related taxes ................       12,655        13,783
Warranty liability ...............................       72,188        93,447
Customer Deposits ................................            -            92
Total Current Liabilities ..........................      495,191       720,264
Note payable - less current portion ..............        5,480        27,719
Notes payable to related parties - less current
portion .........................................      618,259       655,003
Deferred capital gain less current portion .......      179,855       202,335
Total Other Liabilities ............................      803,594       885,057
Total Liabilities ..................................    1,298,785     1,605,321
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 and February 28, 2009,
respectively ....................................          100           100
Common Stock, $0.01 par value, 50,000,000 shares
authorized, 35,584,286 and 34,829,286 issued and
outstanding at February 28, 2010 and February 28,
2009, respectively ..............................      355,843       348,293
Additional paid-in Capital .......................    3,008,162     2,913,350
Accumulated deficit ..............................   (1,533,211)   (2,414,655)
1,830,894       847,088
Less: Treasury Stock, 2,275,000 shares at cost at
February 28, 2010 and February 28, 2009 .........     (142,000)     (142,000)
Total Stockholders' Equity .....................    1,688,894       705,088
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .........  $ 2,987,679   $ 2,310,409
FOR THE YEARS ENDED
FEBRUARY 28,   FEBRUARY 28,
------------   ------------
NET SALES .......................................   $  3,774,873   $  3,439,110
Cost and Expenses
Cost of goods Sold ............................      1,263,406      1,243,387
Selling, general and administrative ...........      1,697,223      1,314,916
Research and development ......................         27,921         22,441
Depreciation and amortization .................         64,804         79,355
Total Costs and Expenses ........................      3,053,354      2,660,099
Net Operating Profit ............................        721,519        779,011
Other Income/(Expenses)
Interest Expense ..............................        (47,504)       (51,680)
Loss Foreign Currency Exchange ................         (4,295)        (2,484)
Loss on impairment of Goodwill ................         (8,609)             -
Interest and Other Income .....................          1,349              8
Total other Income/(Expense) ....................        (59,059)       (54,156)
INCOME BEFORE TAXES .............................        662,460        724,855
Income Tax Benefit ............................        226,984        306,000
NET INCOME ....................................        889,444      1,030,855
Preferred stock dividends .......................          8,000          8,000
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS' ....   $    881,444   $  1,022,855
============   ============
NET INCOME PER COMMON SHARE AVAILABLE TO COMMON
STOCKHOLDERS' ..................................   $       0.02   $       0.03
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ....     35,377,437     34,829,286
REPRO-MED SYSTEMS, INC
STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .....................................  $    889,444   $ 1,030,855
Adjustments to reconcile net income to net cash
from operating activities:
Stock based Compensation .....................        19,312        15,972
Interest expense paid with common stock and
options .....................................             -         8,237
Interest charged to additional paid in capital             -        17,640
Depreciation and amortization ................        64,804        79,355
Deferred capital gain - building lease .......       (22,480)      (22,480)
Loss from impairment of Goodwill .............         8,609             -
Increase in deferred tax asset ...............      (226,984)     (306,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ...      (166,218)     (191,536)
(Increase) decrease in inventory .............       (12,735)      (70,817)
(Increase) decrease in prepaid expense .......         5,586       (28,805)
Increase (decrease) in accounts payable ......      (138,760)     (122,956)
Increase (decrease) in accrued payroll and
related taxes ...............................        (1,128)       (4,811)
Increase (decrease) in accrued expense .......       (23,801)       89,361
Increase (decrease) in customer deposits .....           (92)       (5,088)
Increase (decrease) in warranty liability ....       (21,259)       31,253
Increase (decrease) in accrued interest ......         8,000         8,000
------------   -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........       382,298       528,180
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment ............       (51,989)      (63,383)
Payments for patents ...........................        (4,169)         (589)
NET CASH USED IN INVESTING ACTIVITIES ............       (56,158)      (63,972)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable to related parties ..             -       378,663
Proceeds from note payable .....................         7,697             -
Net payments on note payable to financial
institutes ....................................             -      (400,000)
Payments to note payable to related parties ....       (34,610)      (15,000)
Payments on notes payable ......................        (5,053)       (4,223)
NET CASH USED BY FINANCING ACTIVITIES ............       (31,966)      (40,560)
NET INCREASE, IN CASH AND CASH EQUIVALENTS .......       294,174       423,648
CASH BEGINNING OF YEAR ...........................       519,209        95,561
CASH END OF YEAR .................................  $    813,383   $   519,209
============   ===========
Cash paid during the year for:
Interest .......................................  $     39,504   $    17,203
Non-Cash activities
Issuance of common stock to reduce related party
loan ..........................................  $     83,050             -
STATEMENT OF STOCKHOLDERS'EQUITY
FOR THE YEARS ENDED FEBRUARY 28, 2010 AND FEBRUARY 28 2009
PREFERRED STOCK     COMMON STOCK
--------------- --------------------   PAID-IN    ACCUMULATED   TREASURY
SHARES  AMOUNT    SHARES     AMOUNT    CAPITAL      DEFICIT       STOCK       TOTAL
------  ------  ----------  --------  ----------  -----------   ---------   ----------
BALANCE, FEBRUARY 29, 2008 .......  10,000  $  100  34,829,286  $348,293  $2,846,094  $(3,437,510)  $(142,000)  $ (385,023)
Preferred stock dividends ........       -       -           -         -           -       (8,000)          -       (8,000)
Fair value of stock options issued
and exercisable ..................       -       -           -         -      24,209            -           -       24,209
Accrued interest on share holder
loan .............................       -       -           -         -      43,047            -           -       43,047
Net income for year ended February
28, 2009 .........................       -       -           -         -           -    1,030,855           -    1,030,855
BALANCE, FEBRUARY 28, 2009 .......  10,000     100  34,829,286   348,293   2,913,350   (2,414,655)   (142,000)     705,088
Issuance of common stock in
accordance with director loan
agreement at $0.11 per share .....       -       -     755,000     7,550      75,500            -           -       83,050
Net income for the year ended
February 28, 2010 ................       -       -           -         -           -      889,444           -      889,444
BALANCE, FEBRUARY 28, 2010 .......  10,000  $  100  35,584,286  $355,843  $3,008,162  $(1,533,211)  $(142,000)  $1,688,894
FEBRUARY 28, 2010 AND FEBRUARY 29, 2009
NOTE 1   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
short-term investments with an original maturity of three months or
less to be cash equivalents.
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
Costs incurred in obtaining patents have been capitalized and are being
amortized over seventeen years.
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 $532,984 and
$689,520 as of February 28, 2010 and February 28, 2009, respectively.
The deferred tax assets have been offset by valuation allowances of $0
and $383,520 as of February 28, 2010 and February 28, 2009,
respectively. Management based the valuation allowance calculations on
the prospect of future profitability. The amount recognized at February
28, 2010, namely $532,984, represents the full amount of tax benefits
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 February 28, 2010 and February 28, 2009 or
during the years then ended. No unrecognized tax benefits are expected
to arise within the next twelve months.
Interest and penalties associated with unrecognized tax benefits are
classified as additional income taxes in the consolidated statements of
income. No interest or penalties for income taxes were recognized
during the years ended February 28, 2010 and February 28, 2009.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the respective
assets. Routine maintenance, repairs and replacement costs are expensed
as incurred and improvements that extend the useful life of the assets
are capitalized. When property and equipment are sold or otherwise
disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and any resulting gain or loss is
recognized in operations.
NET INCOME PER COMMON SHARE
Basic earnings per share is computed on the weighted average of common
shares outstanding during each year. Diluted earnings per share
includes 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 7) and
convertible preferred stock shares as follows:
INCOME        SHARES      PRE-SHARE
FEBRUARY 28, 2010                    (NUMERATOR)  (DENOMINATOR)    AMOUNT
-----------------                    -----------  -------------  ----------
Basic Net Income Per Common Share
Income available ................  $   881,444     35,377,437  $     0.02
Preferred stock dividends .......        8,000              -           -
Options includable ..............            -      2,817,756           -
Convertible preferred stock .....            -        185,185           -
-----------  -------------  ----------
Diluted Net Income Per Common Share  $   889,444     38,380,378  $     0.02
Income available ................  $ 1,022,855     34,829,286  $     0.03
Diluted Net Income Per Common Share  $ 1,030,855     37,788,282  $     0.03
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.
In determining the allowance for doubtful accounts the Company analyzes
the aging of accounts receivable, historical bad debts, customer
creditworthiness and current economic trends.
SUBSEQUENT EVENTS
The Company has evaluated subsequent events through June 1, 2010, the
date on which the financial statements were issued. In March 2010, the
position of chief operating officer was eliminated and all
responsibilities and duties were assumed by the chief executive
officer.
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 collectability of the sales price is reasonably assured. The
Company's revenue stream is derived from the sale of an assembled
product. Other service revenues are recorded as the service is
performed. Shipping and handling costs are generally billed to
customers and are included in sales. The Company does not accept return
of goods shipped unless it is a Company error. The Company does not
grant sales allowances other than an occasional 1% discount for
payments made within 30 days. The only credits provided to customers
are for defective merchandise and sales incentives are occasional
advertising in customer catalogues.
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.
EMERGING ACCOUNTING STANDARDS
In January 2010, the Financial Accounting Standards Board ("FASB")
issued authoritative guidance intended to improve disclosures about
fair value measurements. The guidance requires entities to disclose
significant transfers in and out of fair value hierarchy levels and the
reasons for the transfers and to present information about purchases,
sales, issuances and settlements separately in the reconciliation of
fair value measurements using significant unobservable inputs (Level
III). Additionally, the guidance clarifies that a reporting entity
should provide fair value measurements for each class of assets and
liabilities and disclose the inputs and valuation techniques used for
fair value measurements using significant other observable inputs
(Level II) and significant unobservable inputs (Level III). This
guidance is effective for interim and annual periods beginning after
December 15, 2009 except for the disclosures about purchases, sales,
issuances and settlements in the Level III reconciliation, which will
be effective for interim and annual periods beginning after December
15, 2010. As this guidance provides only disclosure requirements, the
adoption of this standard will not impact the Company's results of
operations, cash flows or financial positions.
In October 2009, the FASB issued new guidance related to the revenue
recognition in situations with multiple-element arrangements. The new
guidance requires companies to allocate revenue in multiple-element
arrangements based on an element's estimated selling price if
vendor-specific or other third-party evidence of value is not
available. The accounting guidance will be applied prospectively and
will become effective for annual periods beginning on or after June 15,
2010. Early adoption is permitted. The Company is currently evaluating
the impact that the adoption of this guidance will have on the
financial statements.
In August 2009, the FASB issued guidance clarifying the measurement of
liabilities at fair value in the absence of observable market
information. The guidance was effective for the first reporting period,
including interim periods, beginning after August 28, 2009. The
adoption of this guidance did not have a material effect on the
Company's financial position, results of operations or cash flows.
In June 2009, the FASB issued the FASB Accounting Standards
Codification (the "Codification") for financial statements issued for
annual periods ending after September 15, 2009. The Codification became
the single authoritative source for GAAP. Accordingly, previous
references to GAAP accounting standards are no longer used in the
Company's disclosures, including these Notes to the Financial
Statements. The Codification does not affect the Company's financial
position, cash flows, or results of operations.
In May 2009, the FASB issued guidance establishing standards for and
disclosures of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued.
The new guidance was effective for interim and annual reporting periods
ending after June 15, 2009. Since the new standards only required
additional disclosures, the adoption did not impact the Company's
financial position, results of operations or cash flows.
In April 2009, the FASB issued updated guidance relating to intangible
asset valuation to identify the factors that should be considered in
developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. This updated guidance was
effective for fiscal years beginning after December 31, 2008. The
Company adopted the amendment effective March 1, 2009, and such
adoption did not impact the Company's financial position, results of
operations or cash flows.
NOTE 2   INVENTORY
Inventory is valued at the lower of average cost or market and consists
of the following at:
FEBRUARY 28, 2010    FEBRUARY 28, 2009
-----------------    -----------------
Raw materials ............    $         451,444    $         470,426
Work in progress .........               18,572               37,391
Finished goods ...........              164,568              114,032
$         634,584    $         621,849
NOTE 3   PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
FEBRUARY 28,  FEBRUARY 28,   ESTIMATED
2010          2009      USEFUL LIVES
------------  ------------  ------------
Furniture and office equipment .......  $    489,679  $    459,840    5 years
Manufacturing equipment and tooling ..       987,981       965,831   7-12 years
1,477,660     1,425,671
Less: accumulated depreciation .......     1,256,617     1,197,359
Property and Equipment, Net ..........  $    221,043  $    228,312
Depreciation expense was $59,258 and $70,747 for the years ended February 28,
2010 and February 28, 2009, respectively.
NOTE 4   RELATED PARTY TRANSACTIONS
NOTES PAYABLE TO RELATED PARTIES
The President of the Company has advanced the Company $100,000 under a
demand loan which bears interest at the rate of 8% (see Note 5 -
Long-term debt). This note has been approved by the Board of Directors.
The President has agreed to extend the maturity date to March 31, 2011.
LEASED AIRCRAFT
The Company leases an aircraft from a Company controlled by the
President. The lease payments aggregated $21,500 for the years ended
February 28, 2010 and February 28, 2009. The original lease agreement
has expired and the Company is currently on a month-to-month basis for
rental payments.
NOTE 5   LONG-TERM DEBT
Long-term debt consists of the following at:
The President of the Company has loaned the Company,
$100,000 at 8% interest. The loan is unsecured and
matures March 31, 2011 ............................       100,000      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
is payable in 84 monthly installments of $552
The loan is secured by the vehicle. The balance of
this loan was paid in full in April 2010, and
therefore is considered current ...................        27,693       32,319
In February 2009, the Company was granted a loan
from a director of the Company in the amount of
$672,663, payable in 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 ...................................       555,003      672,663
In October 2009, the Company entered into an
equipment loan with Key Equipment Finance to
purchase equipment. The loan bears interest at a
rate of 7.50% and is payable in 48 monthly
installments of $189 ..............................         7,270            -
689,966      804,982
Less current portion ...............................        66,227      122,260
Long-term portion ..................................      $623,739     $682,722
Aggregate maturities as required on long-term debt at February 28, 2010
2011 ........      $  66,227
2012 ........        140,939
2013 ........         43,494
Thereafter ..        347,178
Total .......      $ 689,966
NOTE 6   STOCKHOLDERS' EQUITY
On June 8, 2009, the Company issued 755,000 shares of its common stock
at $0.11 per share in accordance with a related party loan agreement
with a director of the Company. The charge was a reduction of the note
payable to the related party.
NOTE 7   STOCK OPTIONS
On June 6, 2007, the Board of Directors approved the issuance of
4,360,000 stock options to key employees and directors of the Company.
The options have an expiration date of 5 years from the date of grant
and an exercise price of $0.06 per share. Of the 4,360,000 stock
options granted, 1,690,000 vested immediately and 890,000 stock options
vest each succeeding year for three consecutive years.
The 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 year ended February 28, 2010, the Company recorded options
expense of $19,312 in the accompanying financial statements. As of
February 28, 2010, there was approximately $13,000 of total
unrecognized compensation cost related to unvested options. That cost
is expected to be recognized next year.
The following table summarizes the Company's stock options.
WEIGHTED-
WEIGHTED-    AVERAGE
AVERAGE    REMAINING
EXERCISE   CONTRACTUAL
OPTIONS                SHARES      PRICE       TERM
--------------------------------  ---------  ---------  -----------
Outstanding at March 1, 2009 ...  3,400,000  $    0.06            -
Granted ........................          -          -            -
Exercised ......................          -          -            -
Forfeited or expired ...........          -          -            -
---------  ---------  -----------
Outstanding at February 28, 2010  3,400,000       0.06          2.3
Exercisable at February 28, 2010  2,630,000  $    0.06          2.3
A summary of the status of the Entity's nonvested shares as of February
28, 2010, and changes during the year ended February 28, 2010, is
presented below.
GRANT-DATE
NONVESTED SHARES                  SHARE     FAIR VALUE
------------------------------  ---------   ----------
Nonvested at March 1, 2009 ...  1,540,000   $     0.06
Granted ......................          -
Vested .......................   (770,000)        0.06
Forfeited ....................          -            -
---------   ----------
Nonvested at February 28, 2010    770,000   $     0.06
NOTE 8   SALE-LEASEBACK TRANSACTION - OPERATING LEASE
On February 25, 1999, the Company entered into a sale-leaseback
arrangement whereby the Company sold its land and building at 24
Carpenter Road in Chester, New York and leased it back for a period of
20 years. The leaseback is accounted for as an operating lease. The
gain of $449,617 realized in this transaction has been deferred and is
amortized to income in proportion to rental expense over the term of
the related lease.
At February 28, 2010 minimum future rental payments are:
YEAR           MINIMUM RENTAL PAYMENTS
----           -----------------------
2011 .......         $  132,504
2012 .......            132,504
Thereafter .            530,016
Rent expense for the year ended February 28, 2010 aggregated $132,504.
NOTE 9   FEDERAL AND STATE INCOME TAXES
The Company files federal and New York State income tax returns. Net
operating losses in the amount of $1,959,638 and $1,959,258 are
available to offset future federal and State corporate tax liabilities
respectively. These losses are scheduled to expire February 28, 2018
through February 28, 2028. The Company recorded a deferred tax benefit
related to these federal and state net operating losses. The Company
also anticipates that these losses will be utilized fully prior to the
prescribed carry forward periods.
The (benefit) provision for income taxes consisted of:
---------    ---------
State income tax:
Deferred ..............     $ (92,072)   $       -
Current ...............             -            -
Federal income tax:
Deferred ..............      (134,912)    (306,000)
Total .........     $(226,984)   $(306,000)
=========    =========
Income taxes calculated at statutory rates are substantially equivalent
to the applicable income taxes (benefit) reported in the Statements of
The components of the (benefit) provision for deferred income taxes for
the years ended February 28, 2010 and 2009, respectively, were as
---------      ---------
Reduction of deferred tax asset
Valuation allowance ...........     $(226,984)     $(306,000)
Total .................     $(226,984)     $(306,000)
=========      =========
The components of deferred tax assets at February 28, 2010 and 2009,
respectively, are as follows:
--------      --------
Deferred Tax Assets:
Net operating loss carry forward         $532,984      $689,520
532,984       689,520
Less valuation allowance ..........             -       383,520
Less valuation allowance ..........      $532,984      $306,000
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheets as of February 28, 2010 and 2009, as
Current Assets ..........      $308,250      $306,000
Noncurrent Assets .......       224,734            --
$532,984      $306,000
NOTE 10  COMMITMENTS AND CONTINGENCIES
The Company is contingently liable to rework and fulfill a contractual
commitment of its product for a customer order. The total additional
material and labor cost to complete this work approximates $12,000. The
provision has been recorded in the Company's financial statements.
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
During the year ended February 28, 2009, Meyler & Company, LLC., the independent
accountant for the fiscal year ended February 29, 2008, resigned due to a
disagreement in audit fees for the year ended February 29, 2008. An unqualified
opinion was issued in conjunction with the audit of the fiscal year ended
February, 29, 2008. The decision to change accountants was approved by the Board
of Directors. During the fiscal year ended February 29, 2008 and the interim
periods up to the point of Meyler & Company, LLC's resignation, there were no
disagreements in accounting principles or practices, financial statement
disclosure, or audit scope or procedures.
On January 9, 2009 McGrail, Merkel, Quinn & Associates, P.C. a registered public
accounting firm, was engaged by Repro-Med Systems, Inc. to review the quarterly
financial statements for the period ended November 30, 2008 and audit the
financial statements for the fiscal year ending February 28, 2009. Prior to this
engagement, the Company had no previous consultations with the newly appointed
accountant. McGrail, Merkel, Quinn & Associates, P.C. has reviewed this
disclosure and has no new information, clarifications, or disagreements.
Subsequently, McGrail Quinn & Associates, P.C. was engaged by Repro-Med Systems
Inc. to review all quarterly reports (May, August, and November 2009) and audit
the February 28, 2010 financial statements.
ITEM 9A(T). CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
our management, including our Chief Executive Officer, or CEO, acting as Chief
Financial Officer or CFO, of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of February
28, 2010. Based on that evaluation, our management, including our CEO/CFO,
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms, and is
accumulated and communicated to our management, including our CEO/CFO, to allow
timely decisions regarding required disclosure.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. The Company's internal
control over financial reporting is a process designed under the supervision of
the Company's Chief Executive Officer, also acting as Chief Financial Officer,
and implemented in conjunction with management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the Company's consolidated financial statements for external
purposes in accordance with generally accepted accounting principles.
There are inherent limitations in the effectiveness of any internal control,
including the possibility of human error and the circumvention or overriding of
controls. Accordingly, even effective internal control can provide only
reasonable assurance with respect to financial statement preparation. Further,
because of changes in conditions, the effectiveness of internal control may vary
Management assessed the effectiveness of the Company's internal control over
financial reporting as of February 28, 2010. This assessment was based on
criteria for effective internal control over financial reporting described in
"Internal Control - Integrated Framework," issued by the Committee of Sponsoring
Organization of the Treadway Commission (COSO). Based on this assessment,
management determined that, as of February 28, 2010, the Company maintained
effective internal control over financial reporting.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the SEC that
permit the Company to provide only management's report in the annual report.
There has been no change in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) during the fiscal year ended
February 28, 2010 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The following table sets forth-certain information with respect to the Executive
Officers and Directors:
NAME                 AGE    POSITION/HELD SINCE
----                 ---    -------------------
Andrew I. Sealfon    64     President 1980,
Treasurer, CFO 1983,
Chairman 1989,
Director 1980,
CEO 1986
Paul Mark Baker      59     Director 1991
Remo Spagnoli        80     Director 1993
Mr. Sealfon is deemed a "parent" and "promoter" as those terms are defined under
the Securities Act of 1933 as amended.
All directors hold office until the next annual meeting of shareholders or until
their successors are elected. Executive Officers hold office at the discretion
of the Board of Directors.
Mr. Sealfon co-founded Repro-Med Systems, Inc. in 1980. He is an electrical
engineer and inventor and has been granted numerous United States patents. Mr.
Sealfon is a graduate of Lafayette College.
Dr. Baker earned a medical degree from Cornell University Medical College. He is
a practicing pediatrician and is attending at Department of Pediatrics Horton
Memorial Hospital, Middletown, NY and attending at New York Hospital-Cornell
Medical Center in New York City. Dr. Baker assisted us in the development of the
RES-Q-VAC(R) Suction System. In addition, Dr. Baker has published results of use
of the RES-Q-VAC(R) in a letter to LANCET, a medical journal.
Mr. Spagnoli is a principal founder and past President and Chairman of CRS,
Inc., Newburgh, NY, a manufacturer of proprietary inventory control and point of
sale software and distributor of computer equipment. Mr. Spagnoli presently
consults for CRS, Inc.
ITEM 11. EXECUTIVE COMPENSATION
Andrew I. Sealfon, President, received $155,007 in salary from Repro-Med during
the fiscal year ended February 28, 2010. Mr. Sealfon had been granted incentive
stock options, which were issued on June 6, 2007, in Repro-Med under its Stock
Option Agreement.
The officers are reimbursed for travel and other expenses incurred on behalf of
Repro-Med Systems, Inc. We do not have pension or profit sharing plans.
SUMMARY COMPENSATION
NAME & POSITION                     YEAR         SALARY         OTHER *
---------------                     ----        --------        -------
Andrew I. Sealfon, President        2010        $155,007           -
2009        $122,499           -
* Other compensation includes car allowance (not itemized here).
Table of aggregated options exercised in the fiscal year and option values at
year-end February 2010:
VALUE OF
NUMBER OF      UNEXCERCISED
UNEXERCISED    IN-THE-MONEY
SHARES             OPTIONS AT     OPTIONS AT
ACQUIRED            YEAR-END       YEAR-END
ON      VALUE    EXERCISABLE/   EXERCISABLE/
NAME OF INDIVIDUAL  EXERCISE  REALIZED  UNEXERCISABLE  UNEXERCISABLE
------------------  --------  --------  -------------  -------------
A. I. SEALFON
Exercisable             0         0       1,500,000          $0
Unexercisable           0         0         500,000          $0
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 2010, the number of shares of
Common Stock beneficially owned by each person owning more than 5% of the
outstanding shares, by each officer and director, and by all officers and
directors as a group:
NAME OF PRINCIPAL
SHAREHOLDERS AND     NUMBER OF     PERCENT
IDENTITY OF GROUP    SHARES OWNED  OF CLASS  NOTES:
-------------------  ------------  --------  ------
Andrew I. Sealfon*     5,167,250      15%       1
Dr. Paul Mark Baker    1,166,500       3%       -
Remo Spagnoli          2,005,000       6%     2,3
* Andrew I. Sealfon is deemed a "parent" and a "promoter" of Repro-Med Systems,
Inc. as those terms are defined under the Securities Act of 1933, as amended.
(1) Does not include 690,000 shares of common stock owned by members of Mr.
Sealfon's family, as to which Mr. Sealfon disclaims beneficial ownership.
(2) Includes 477,000 shares of Common Stock owned by six members of Mr.
Spagnoli's family.
(3) Mr. Spagnoli directly owns 10,000 shares of Repro-Med Convertible 8%
Preferred Stock. For fiscal 2010, $8,000 in preferred stock dividends has been
accrued on the balance sheet. The preferred stock can be redeemed for 185,185
shares of Repro-Med common stock at $0.54 per share. Consequently, 185,185
shares are deemed beneficially owned by Mr. Spagnoli and excluded above.
Certain shares and/or options which have been disclosed above were issued to
officers, directors, or 10% share holders. The Company has reminded each of said
directors to file an SEC Form 3 4, or 5 as applicable, with respect to such
stock issuances or option grants. The said Company's officers and directors have
not yet filed their SEC Forms 4 or 5 to reflect the shares or options that they
have received.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To reduce corporate travel expenses, we maintain and operate a corporate
aircraft. Since 1992, the aircraft has been leased from AMI Aviation, Inc. Mr.
Sealfon is a majority shareholder in AMI Aviation. The lease expenses paid were
$21,500 in each of 2010 and 2009. We believe the AMI lease is on terms
competitive with those that could be obtained from unaffiliated third parties.
During fiscal year 2004, the Company borrowed $10,000 from Mr. Sealfon under
terms similar to the private note program. Interest is payable at 2% over the
prime rate plus one share of common stock per quarter for each dollar of
indebtedness. As of the date of this report, these shares have not been issued
to Mr. Sealfon. The loan matured June 30, 2008 and was paid.
The President of the Company has loaned the Company, $100,000 at 8% interest.
The loan is unsecured and matures March 31, 2011.
In February 2009 the Company borrowed $672,663 from a Director of the company,
at 6% interest per annum. In June 2009, 755,000 shares of stock were issued to
the director at $0.11 per share to reduce the debt. The remaining debt matures
in February 2021.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of the fees billed to us by McGrail Merkel Quinn &
Associates, and our independent auditors, for professional services rendered for
the fiscal years ended February 28, 2010 and February 28, 2009, respectively.
FEE CATEGORY       FISCAL 2010 FEES   FISCAL 2009 FEES
------------       ----------------   ----------------
Audit Fees (1)        $49,500            $43,500
(1) Audit fees consist of aggregate fees billed for professional
services rendered for the audit of our annual financial statements
and review of the interim financial statements included in
quarterly reports or services that are normally provided by the
independent auditors in connection with statutory and regulatory
filings or engagements for the fiscal years ended February 28, 2010
and February 28, 2009, respectively. All Other Fees, if any,
consist of aggregate fees billed for products or services provided
by McGrail Merkel Quinn & Associates and other than those disclosed
The Board of Directors is responsible for the appointment, compensation and
oversight of the work of the independent auditors and approves in advance any
services to be performed by the independent auditors, whether audit-related or
not. The Board of Directors reviews each proposed engagement to determine
whether the provision of services is compatible with maintaining the
independence of the independent auditors. All of the fees shown above were
pre-approved by the Board of Directors.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(A)  EXHIBITS
(3)  Articles of Incorporation and By-Laws
3(a) -  Articles of Incorporation (1)
3(b) -  By-Laws (2)
(10) Material Contracts:
(21) Subsidiary of Registrant:
(B)  REPORTS ON FORM 8-K:
(1)  Form 8-K/A, Item 4.01 - Changes in Registrant's Certifying Accountant
Incorporated by reference for January 12, 2009
(2)  Form 8-K, Item 8.01 - Other Events, Incorporated by reference for November
9, 2009.
(3)  Form 8-K, Item 5.02 - Department of Directors or Certain Officers; election
of Directors, Appointment of certain officers; Compensatory arrangements of
Certain officers, Incorporated by reference for March 29, 2010.
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.
/s/ Andrew I. Sealfon
Andrew I. Sealfon, President
Dated: June 1, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Andrew I. Sealfon                                    June 1, 2010
Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, and
Chief Executive Officer, Principal Financial Officer
/s/ Dr. Paul Mark Baker                                  June 1, 2010
Dr. Paul Mark Baker, Director
/s/ Remo Spagnoli                                        June 1, 2010
Remo Spagnoli, Director
REPRO MED SYSTEMS INC Page
REPRO MED SYSTEMS INC Reports
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redpajama_set_name: RedPajamaCommonCrawl