U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended August 31, 2009
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________ to ________.
Commission File Number 0-12305
REPRO-MED SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New York 13-3044880
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
24 Carpenter Road, Chester New York 10918
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (845) 469-2042
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files.) Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
As of August 31, 2009, 35,584,286 shares of common stock, $.01 par value per
share, were outstanding.
REPRO-MED SYSTEMS, INC.
TABLE OF CONTENTS
PAGE
----
PART I FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
Balance Sheets - August 31, 2009 (Unaudited) and
February 28, 2009 ............................................... 3
Statements of Operations (Unaudited) - for the Three-Months and
Six months Ended August 31, 2009 and August 31, 2008 ............ 4
Statements of Cash Flows (Unaudited) - for the Six-Months Ended
August 31, 2009 and August 31, 2008 ............................. 5
Notes to Financial Statements ................................... 6-13
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................... 14
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ...... 20
ITEM 4. Controls and Procedures ......................................... 20
PART II OTHER INFORMATION
--------------------------
ITEM 1. Legal Proceedings ............................................... 21
ITEM 1A. Risk Factors .................................................... 21
ITEM 2. Changes in Securities and Use of Proceeds ....................... 21
ITEM 3. Defaults Upon Senior Securities ................................. 21
ITEM 4. Submission of Matters to a Vote of Security Holders ............. 21
ITEM 5. Other Information ............................................... 21
ITEM 6. Exhibits ........................................................ 21
Page 2
PART 1 - FINANCIAL INFORMATION
REPRO-MED SYSTEMS, INC.
BALANCE SHEETS
AUGUST 31, FEBRUARY 28,
2009 2009
----------- -----------
UNAUDITED
ASSETS
CURRENT ASSETS:
Cash ................................................................ $ 497,604 $ 519,209
Accounts receivable less allowance for doubtful accounts of $28,723
and $26,783 for August 31, 2009 and February 28, 2009 respectively 478,942 488,742
Inventory ........................................................... 707,884 621,849
Prepaid expenses .................................................... 107,918 73,197
Deferred Tax Asset Net of Valuation Allowance of $383,520 and
$383,520 for August 2009 and February 2009 respectively ........... 220,195 306,000
----------- -----------
Total Current Assets ................................................ 2,012,543 2,008,997
----------- -----------
PROPERTY & EQUIPMENT, less accumulated depreciation of $1,229,351 and
$1,197,359 at August 31, 2009 and February 28, 2009 respectively .... 226,884 228,312
OTHER ASSETS:
Patents, net of accumulated amortization of $93,858 and $91,198 at
August 31, 2009 and February 28, 2009, respectively ............... 35,220 36,335
Goodwill ............................................................ 8,609 8,609
Security deposit .................................................... 28,156 28,156
----------- -----------
Total Other Assets .................................................... 71,985 73,100
----------- -----------
TOTAL ASSETS .......................................................... $ 2,311,412 $ 2,310,409
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - current portion ...................................... $ 4,755 $ 4,600
Notes payable to related parties - current portion .................. 35,661 117,660
Deferred capital gain - current portion ............................. 22,481 22,481
Accounts payable .................................................... 134,776 219,477
Accrued expenses .................................................... 72,009 142,541
Accrued interest .................................................... 53,060 46,183
Accrued preferred stock dividends ................................... 64,000 60,000
Accrued payroll and related taxes ................................... 14,776 13,783
Warranty liability .................................................. 75,556 93,447
Customer Deposits ................................................... 62 92
----------- -----------
Total Current Liabilities ............................................. 477,136 720,264
----------- -----------
OTHER LIABILITIES
Note payable - less current portion ................................. 25,285 27,719
Notes payable to related parties - less current portion ............. 639,782 655,003
Deferred capital gain less current portion .......................... 191,095 202,335
----------- -----------
Total Other Liabilities ............................................... 856,162 885,057
----------- -----------
Total Liabilities ..................................................... 1,333,298 1,605,321
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, 8% cumulative, liquidation value $100,000, $0.01 par
value, 2,000,000 shares authorized, 10,000 shares issued and
outstanding at August 31, 2009 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 August 31,
2009 and February 28, 2009, respectively .......................... 355,843 348,293
Additional paid-in Capital .......................................... 3,008,162 2,913,350
Accumulated deficit ................................................. (2,243,991) (2,414,655)
----------- -----------
1,120,114 847,088
Less: Treasury Stock, 2,275,000 shares at cost at August 31, 2009
and February 28, 2009 ............................................. (142,000) (142,000)
----------- -----------
Total Stockholders' Equity .......................................... 978,114 705,088
----------- -----------
Total Liabilities and Stockholders' Equity ............................ $ 2,311,412 $ 2,310,409
=========== ===========
The accompanying notes are an integral part of these Financial Statements
Page 3
REPRO-MED SYSTEMS, INC.
STATEMENTS OF OPERATIONS UNAUDITED
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
AUGUST 31, AUGUST 31,
2009 2008 2009 2008
------------ ------------ ------------ ------------
NET SALES .................................. $ 947,056 $ 936,495 $ 1,760,185 $ 1,636,471
COST AND EXPENSES
Cost of goods sold ....................... 305,681 317,815 618,216 608,935
Selling, general and administrative ...... 424,548 291,729 801,237 602,882
Research and development ................. 6,880 6,728 14,009 10,033
Depreciation and amortization ............ 16,698 22,440 34,652 40,596
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES ................... 753,807 638,712 1,468,114 1,262,446
------------ ------------ ------------ ------------
NET OPERATING PROFIT ....................... 193,249 297,783 292,071 374,025
OTHER INCOME/(EXPENSES)
Gain (Loss) Currency Exchange ............ (2,027) - (2,828) -
Interest Expense ......................... (11,894) (18,262) (24,141) (29,866)
Interest and Other Income ................ 442 8 680 8
------------ ------------ ------------ ------------
TOTAL OTHER INCOME/(EXPENSE) ............... (13,479) (18,254) (26,289) (29,858)
------------ ------------ ------------ ------------
NET PROFIT BEFORE TAXES .................. 179,770 279,529 265,782 344,167
Provision for Income Taxes ............. (69,159) - (91,118) -
------------ ------------ ------------ ------------
NET INCOME ............................... $ 110,611 $ 279,529 $ 174,664 $ 344,167
PREFERRED STOCK DIVIDENDS .................. $ 4,000 4,000 4,000 4,000
------------ ------------ ------------ ------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 106,611 $ 275,529 $ 170,664 $ 340,167
------------ ------------ ------------ ------------
NET INCOME PER COMMON SHARE AVAILABLE TO
COMMON STOCKHOLDERS, BASIC AND DILUTED .. - 0.01 - 0.01
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 35,518,634 34,829,286 35,173,960 34,829,286
============ ============ ============ ============
The accompanying notes are an integral part of these Financial Statements
Page 4
REPRO-MED SYSTEMS, INC
STATEMENTS OF CASH FLOWS UNAUDITED
FOR THE SIX MONTHS ENDED
-------------------------
AUGUST 31, AUGUST 31,
2009 2008
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ................................................... $ 174,664 $ 344,167
Adjustments to reconcile net income to net cash from operating
activities:
Stock based Compensation ................................... 19,312 24,209
Interest charged to additional paid in capital ............. - 8,820
Depreciation and amortization .............................. 34,652 40,596
Deferred capital gain - building lease ..................... (11,240) (11,240)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ................. 9,800 (114,048)
(Increase) decrease in inventory ........................... (86,035) (12,741)
(Increase) decrease in prepaid expense ..................... (34,721) (31,658)
(Increase) decrease in deferred tax asset .................. 85,805 -
Increase (decrease) in accounts payable .................... (84,701) (193,757)
Increase (decrease) in accrued payroll and related taxes ... 993 (7,553)
Increase (decrease) in accrued expense ..................... (70,532) 17,999
Increase (decrease) in customer deposits ................... (30) (5,180)
Increase (decrease) in warranty liability .................. (17,891) -
Increase (decrease) in accrued interest .................... 6,877 4,600
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................... 26,953 64,214
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment .......................... (30,564) -
Reduction in patents ......................................... - 516
Payments for patents ......................................... (1,545) (680)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES .......................... (32,109) (164)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on note payable to financial institutes ......... - (5,733)
Payments to note payable to related parties .................. (14,170) -
Payments on notes payable .................................... (2,279) (2,024)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES .......................... (16,449) (7,757)
--------- ---------
NET (DECREASE), INCREASE IN CASH AND CASH EQUIVALENTS .......... (21,605) 56,293
CASH BEGINNING OF YEAR ......................................... 519,209 95,561
--------- ---------
CASH END OF YEAR ............................................... $ 497,604 $ 151,854
========= =========
Supplemental Information
Cash paid during the year for:
Interest ..................................................... $ 7,018 $ 8,209
Non-Cash Activities
Issuance of Common Stock to reduce related party loan ........ $ 83,050 $ -
The accompanying notes are an integral part of these Financial Statements
Page 5
REPRO-MED SYSTEMS, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE NATURE OF OPERATIONS
Repro-Med Systems, Inc. (the "Company") was incorporated on March 24,
1980 under the laws of the State of New York. The Company was organized
to engage in research, development, laboratory and clinical testing,
production and marketing of medical devices used in the treatment of
the human condition.
BASIS OF PRESENTATION
The accompanying unaudited financial statements as of August 31, 2009
have been prepared in accordance with generally accepted accounting
principles in accordance with instructions to regulation S-X.
Accordingly, they do not include all of the information and disclosures
required by accounting principles generally accepted in the United
States of America for complete financial presentation.
In the opinion of the Company's management, the financial statements
contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the Company's financial position as of
August 31, 2009 and the results of operations and cash flow for the
interim periods ended August 31, 2009 and 2008.
The results of operations for the three and six-month periods ended
August 31, 2009, are not necessarily indicative of the results to be
expected for the full year. These interim financial statements should
be read in conjunction with the financial statements and notes thereto
of the Company and management's discussion and analysis of financial
condition and results of operations included in the Company's Annual
Report for the year ended February 28, 2009, as filed with the
Securities and Exchange Commission on Form 10-K.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or
less to be cash equivalents.
INVENTORY
Inventories consist of purchased parts and assembled units and are
stated at the lower of average cost or market value. Average cost is
calculated using a rolling average based upon new purchases and
quantities.
PATENTS
Costs incurred in obtaining patents have been capitalized and are being
amortized over seventeen years.
Page 6
REPRO-MED SYSTEMS, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
INCOME TAXES
Deferred income taxes are provided using the liability method whereby
deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carry forwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of the changes in tax laws and rates of the date of
enactment.
The Company recorded deferred tax assets in the amount of $603,715 and
$689,520 for the periods ended August 31, 2009 and February 28, 2009,
respectively. The deferred tax assets have been offset by valuation
allowances of $383,520 for the periods ended August 31, 2009 and
February 28, 2009. Management based the valuation allowance
calculations on the prospect of future profitability.
The company recorded a net amount of $306,000 in available net
operating loss tax benefits during the quarter ended February 28, 2009.
There were no income tax expense recognized in the three and six-months
ended August 31, 2008. For the three and six-months ended August 31,
2009, $18,245 and $67,560 were recognized related to the use of a
portion of these benefits for current taxable income.
The Company adopted the provisions of FIN 48, Accounting for
Uncertainty in Income Taxes, on March 1, 2007. 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 August 31, 2009
and February 28, 2009 or during the periods then ended. No unrecognized
tax benefits are expected to arise within the next twelve months.
Page 7
REPRO-MED SYSTEMS, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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, as prescribed in Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128).
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 6) and convertible preferred stock shares
as follows:
INCOME SHARES PRE-SHARE
THREE-MONTHS ENDED AUGUST 31, 2009 (NUMERATOR) (DENOMINATOR) AMOUNT
---------------------------------- ----------- ------------- ---------
Basic Net Income Per Common Share
Income available ................ $ 106,611 35,518,634 $ -
Preferred stock dividends ....... 4,000 - -
Options includable .............. - 2,777,685 -
Convertible preferred stock ..... - 192,307 -
----------- ------------- ---------
Diluted Net Income Per Common Share $ 110,611 38,488,626 $ -
----------- ------------- ---------
INCOME SHARES PRE-SHARE
THREE-MONTHS ENDED AUGUST 31, 2009 (NUMERATOR) (DENOMINATOR) AMOUNT
--------------------------------- ----------- ------------- ---------
Basic Net Income Per Common Share
Income available ................ $ 170,664 35,173,960 $ -
Preferred stock dividends ....... 4,000 - -
Options includable .............. - 2,777,685 -
Convertible preferred stock ..... - 192,307 -
----------- ------------- ---------
Diluted Net Income Per Common Share $ 174,664 38,143,952 $ -
----------- ------------- ---------
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.
Page 8
REPRO-MED SYSTEMS, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
In determining the allowance for doubtful accounts the Company analyzes
the aging of accounts receivable, historical bad debts, customer
creditworthiness and current economic trends.
REVENUE RECOGNITION
In accordance with Securities and Exchange Commission's (SEC's), Staff
Accounting Bulletin No. 104, sales of manufactured products are
recorded when shipment occurs and title passes to a customer,
persuasive evidence of an arrangement exists with the customer, the
sales price is fixed and determinable and the 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.
STOCK-BASED COMPENSATION
The Company accounts for employee stock based compensation and stock
issued for services using the fair value method. In accordance with
SFAS No. 123R, the measurement date of shares issued for services is
the date when the counterparty's performance is complete.
The Company accounts for stock issued for services using the fair value
method. In accordance with the Emerging Issues Task Force ("EITF")
96-18, the measurement date of shares issued for service is the date
when the counterparty's performance is complete.
RECLASSIFICATIONS
-----------------
Certain amounts in the February 28, 2009 and August 31, 2008, financial
statements have been reclassified to conform to the presentation used
in the August 31, 2009,financial statements.
NOTE 2 INVENTORY
Inventory is valued at the lower of average cost or market and consists
of the following at:
August 31, 2009 February 28, 2009
--------------- -----------------
Raw materials ......... $412,020 $470,426
Work in progress ...... 24,047 37,391
Finished goods ........ 271,817 114,032
-------- --------
$707,884 $621,849
-------- --------
Page 9
REPRO-MED SYSTEMS, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
August 31, February 28, Estimated
2009 2009 Useful Lives
---------- ------------ ------------
Furniture and office equipment ...... $ 485,757 $ 459,840 5 years
Manufacturing equipment and tooling . 970,478 965,831 7-12 years
---------- ----------
1,456,235 1,425,671
Less: accumulated amortization
and depreciation .................... 1,229,351 1,197,359
---------- ----------
Property and Equipment, Net ......... $ 226,884 $ 228,312
---------- ----------
Depreciation expense was $15,289 and $17,485 for the three months ended
August 31, 2009 and August 31, 2008, respectively. Depreciation expense
was $31,992 and $34,443 for the six months ended August 31,2009 and
August 31,2008 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 were $5,375 for the three
months ended August 31, 2009 and August 31, 2008, and $10,750 for six
months ended August 31,2009 and August 31,2008. The original lease
agreement has expired and the Company is currently on a month-to-month
basis for rental payments.
Page 10
REPRO-MED SYSTEMS, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
NOTE 5 LONG-TERM DEBT
Long-term debt consists of the following at:
August 31, February 28,
2009 2009
---------- ------------
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 ...... 30,040 32,319
In February 2009, the Company refinanced a
previous loan borrowed from a Director of the
Company. The existing loan was replaced by a new
$672,663 loan, payable in monthly installments of
$5,754 at a rate of 6.00% interest. The additional
monies financed through the Director were used to
pay-off a $400,000 financial institution note.
During the second quarter of 2009,the Company
issued the Director 755,000 shares of common stock
at the price of $0.11 per share to further reduce
the debt ......................................... 575,443 672,663
-------- --------
705,483 804,982
Less current portion ............................. 40,416 122,260
-------- --------
Long-term portion ................................ $665,067 $682,722
-------- --------
Aggregate maturities as required on long-term debt at August 31, 2009
are:
2010 ............ $ 40,416
2011 ............ 142,915
2012 ............ 45,638
2013 ............ 48,534
2014 ............ 51,615
Thereafter ...... 376,365
--------
$705,483
--------
Page 11
REPRO-MED SYSTEMS, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
NOTE 6 STOCK OPTIONS
On June 6, 2007, the Board of Directors approved the issuance of
4,360,000 stock options to key employees and directors of the Company.
The options have an expiration date of 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 six-months ended August 31, 2009, $19,312 in option expense
was recorded because the Company records the expense semi-annually from
the grant date. As of August 31, 2009, there was approximately $20,000
of total unrecognized compensation cost related to unvested options.
That cost is expected to be recognized within the next year.
The following table summarizes the Company's stock options:
WEIGHTED-AVERAGE
WEIGHTED-AVERAGE REMAINING
OPTIONS SHARES EXERCISE PRICE CONTRACTUAL TERM
-------------------------------- --------- ---------------- ----------------
Outstanding at February 28, 2009 3,400,000 0.06
Granted ........................ -
Exercised ...................... -
Forfeited or expired ........... -
--------- ---------------- ----------------
Outstanding at August 31, 2009 . 3,400,000 0.06 2.8
--------- ---------------- ----------------
Exercisable at August 31, 2009 . 2,630,000 0.06 2.8
--------- ---------------- ----------------
A summary of the status of the Entity's nonvested shares as of August
31, 2009, and changes during the Six-months ended August 31, 2009, is
presented below:
WEIGHTED-AVERAGE
NONVESTED SHARES SHARES GRANT-DATE FAIR VALUE
------------------------------ --------- ---------------------
Nonvested at February 28, 2009 1,540,000 0.06
Granted ...................... -
Vested ....................... 770,000 0.06
Forfeited .................... -
--------- ---------------------
Nonvested at August 31, 2009 . 770,000 0.06
--------- ---------------------
Page 12
REPRO-MED SYSTEMS, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
NOTE 7 SALE-LEASEBACK TRANSACTION - OPERATING LEASE
On February 25, 1999, the Company entered into a sale-leaseback
arrangement whereby the Company sold its land and building at 24
Carpenter Road in Chester, New York and leased it back for a period of
20 years. The leaseback is accounted for as an operating lease. The
gain of $449,617 realized in this transaction has been deferred and is
amortized to income in proportion to rental expense over the term of
the related lease.
At August 31, 2009 minimum future rental payments are:
Year Minimum Rental Payments
---- -----------------------
2010 ........ $ 132,504
2011 ........ 132,504
2012 ........ 132,504
2013 ........ 132,504
2014 ........ 132,504
thereafter .. 596,268
----------
$1,258,788
==========
Rent expense aggregated $33,126 for the three months ended August 31,
2009 and $30,000 for the three months ended August 31, 2008. Rent
expense aggregated $66,252 for the six months ended August 31,2009 and
$60,000 for the six months ended August 31, 2008.
NOTE 8 COMMITMENTS AND CONTINGENCIES
Contingencies
The Company is contingently liable to rework and fulfill a contractual
commitment of its product for a customer order. The total additional
material and labor cost to complete this work approximates $29,000. The
provision has been recorded in the Company's financial statements.
Page 13
PART I ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------
This Quarterly Report on Form 10-Q contains certain "forward-looking" statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995) and information relating to us that are based on the beliefs of the
management, as well as assumptions made by and information currently available.
Our actual results may vary materially from the forward-looking statements made
in this report due to important factors such as uncertainties associated with
future operating results, unpredictability related to Food and Drug
Administration regulations, introduction of competitive products, limited
liquidity, reimbursement related risks, government regulation of the home health
care industry, success of the research and development effort, market acceptance
of Freedom60(R), availability of sufficient capital to continue operations and
dependence on key personnel. When used in this report, the words "estimate,"
"project," "believe," "anticipate," "intend," "expect" and similar expressions
are intended to identify forward-looking statements. Such statements reflect
current views with respect to future events based on currently available
information and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. These
statements involve risks and uncertainties with respect to the ability to raise
capital to develop and market new products, acceptance in the market place of
new and existing products, ability to penetrate new markets, our success in
enforcing and obtaining patents, obtaining required Government approvals and
attracting and maintaining key personnel that could cause the actual results to
differ materially. Repro-Med does not undertake any obligation to release
publicly any revision to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
THREE MONTHS ENDED AUGUST 31, 2009 VS. 2008
-------------------------------------------
Sales of our Freedom60 and related accessories increased 13% for the quarter
ended August 31, 2009 over the previous quarter and resulting in total gross
sales increasing by 1.5% from $938,458 to $952,164 for the three-month period
ending August 31, 2009 as compared to the quarter ending August 31, 2008.
Returns and allowances were insignificant.
Net profit for the Quarter was $110,611 as compared to $279,529 for the same
quarter in 2008. Cost of goods sold decreased $12,134 or 3.8% from $317,815 in
August 31, 2008 to $305,681 in August 31, 2009. Selling, General and
Administrative Expense (SG&A) increased 46% to $424,548 from $291,729 quarter
over quarter 2009 vs. 2008, due to increased staffing required for new products.
Research and Development increased to $6,880 from $6,728 primarily due to
reallocation of resources from sales to engineering.
Sales of the Freedom60 Syringe Infusion System, related accessories and repairs
increased from $569,498 to $644,934, an increase of $75,436 for the second
quarter ending August 31, 2009 as compared to the same period in 2008. This
increase is due to the continued increase of sales for use with immune globulin
and antibiotics along with word of the costs and performance being communicated
throughout the industry. Sales of RES-Q-VAC and related accessories showed an
Page 14
overall decrease of 12% from $318,983 to $279,637 due to a general decrease in
sales to the emergency markets which we attribute to the general downturn in the
economy. Company sales of non-core products increased during the quarter by
$22,233 primarily due to an OEM customer discontinuing one of their product
lines. Interest expense decreased by 35% to $11,894 from $18,262 for comparative
quarter in 2008 as a result of the repayment of certain notes outstanding in
2008.
SIX MONTHS ENDED AUGUST 31, 2009 VS. 2008
-----------------------------------------
Total sales increased by 7.6% ($123,714) to $1,760,185 from $1,636,471 for the
six month period ending August 31, 2009.
Net income shows a profit of $174,664 for the six months ending August 31, 2009
as compared to $344,167 for the same six months in 2008. Cost of Goods sold
increased $9,281 or 1.5%, from $608,935 to $618,216 due to an increase in
production payroll and related benefits and production supplies.
Selling, General and Administrative increased from $602,882 in August 31, 2008
to $801,237 in August 31, 2009 or 33% resulting from an increase in salaries,
benefits and taxes which were added to market our new subcutaneous infusion sets
which are still in development. The company also incurred higher auditing fees
resulting from obtaining ISO certification status and increases from our SEC
auditing and legal fees. In addition the company has hired a full time sales
person to focus on the European markets.
Research and Development expenses increased $3,976, or 40% from 10,033 in 2008
to 14,009 in 2009.
Depreciation and amortization expenses decreased by $5,944 from $40,596 in 2008
to $34,652 in2009 as a result of assets reaching their fully depreciated values.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net Cash provided from Operations was $26,953 as compared with net cash provided
by operations of $64,214 for the six months ended August 31, 2008. This decrease
is due primarily to a lower net income for the period and payments for fiscal
'09 audit fees resulting from a change of auditors and legal fees.
In January of 2008 we were notified by The Trade Adjustment Assistance Program
of the Trade Department that our application for a grant of $150,000 was
approved for use to assist us with marketing, ISO and regulatory affairs, and
new product development. The grant matches the company on a 50-50 basis thereby
reducing our costs for these new programs in half. The Trade Adjustment
Assistance Program is a United States Government program to help manufacturing
firms adjust to foreign business competition. The program is authorized by the
Trade Act of 1974 and is administered by the U. S. Department of Commerce. The
program operates through Trade Adjustment Assistance Centers located across the
United States. The New York State area is served by the New York State Trade
Adjustment Assistance Center (NYS TAAC). The NYS TAAC is affiliated with the
Research Foundation of the State University of New York at Binghamton. Minimal
funds were used in the previous year however we have initiated these programs
now and intend to complete them by the end of our next fiscal year. At the end
of August 31, 2009 there is approximately $55,000 remaining in payment
assistance from this grant.
Page 15
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 continued to experience an increase in
sales and cash flow during six months ended August 31, 2009 and with these
increases and the capital we currently have, we will continue to meet or exceed
the company's financial needs for the next twelve months.
FREEDOM60
---------
The Freedom60 Syringe Infusion Pump is designed for ambulatory medication
infusions. Ambulatory infusion pumps are most prevalent in the home care market.
Other potential applications for the Freedom60 are pain control, the infusion of
specialized drugs such as IgG, and chemotherapy. The home infusion therapy
market is comprised of approximately 4,500 sites of service, including local and
national organizations, hospital-affiliated organizations, and national home
infusion organizations, and produces approximately $4.5 Billion in revenue
annually (Ref: www.nhianet.org). With insurance reimbursement in a severe
decline, there is a tremendous need for a low-cost, effective alternative to
electronic and expensive disposable IV administration devices for the home care.
The Freedom60 provides a high-quality delivery to the patient at costs similar
to gravity and is targeted for the home health care industry, patient emergency
transportation, and for any time a low-cost infusion is required.
For the home care patient, Freedom60 is an easy-to-use lightweight mechanical
pump using a 60cc syringe, completely portable, cost effective and maintenance
free, with no batteries to replace and no cumbersome IV pole. For the infusion
professional, Freedom60 delivers precise infusion rates and uniform flow
profiles providing consistent transfer of medication. A Form 510(k) Pre-market
Notification for initial design of the Freedom60 as a Class II device was
approved by the FDA in August 1994.
The 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.
The Freedom60 use for Primary Immune Deficiency by injecting immune globulin
(IgG) under the skin as a subcutaneous administration has seen increased usage
over the past year. This method has provided patients with vastly improved
quality of life with much fewer unpleasant side effects over the traditional
intravenous route. The Freedom60 is an ideal system for this administration
since the patient is able to self-medicate at home, the pump is easily
configured for this application, and the Freedom60 is the lowest cost infusion
system available in a heavily cost constrained market. We have begun to
advertise one of the main benefits of the Freedom60 for use with IgG which is
that it operates in "dynamic equilibrium"; that is the pump finds and maintains
a balance between what a patient is 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.
Page 16
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.
In order to receive more favorable Medicare reimbursement for our Freedom60
Syringe Infusion System, we had submitted a formal request for a HCPCS coding
verification with the Statistical Analysis Durable Medical Equipment Regional
Carrier (SADMERC). On May 21, 2007 we received a notification from CMS (Centers
for Medicare & Medicaid Services) that the Freedom60 had been re-reviewed for
Medicare billing. It was the determination that the Medicare HCPCS code(s) to
bill the four Durable Medical Regional Carries (DMERCs) should be: E0779
Ambulatory infusion pump, mechanical, reusable, for infusion 8 hours or greater.
The new coding provides for a substantial increase in reimbursement for
providers using an infusion pump for authorized users under Part B of Medicare.
Current approved uses under Medicare include among others, subcutaneous immune
globulin, antivirals, antifungals, and chemotherapeutics.
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.
Page 17
RES-Q-VAC
---------
The RES-Q-VAC Emergency Airway Suction System is a lightweight, portable,
hand-operated suction device that removes fluids from a patient's airway by
attaching the RES-Q-VAC pump to various proprietary sterile and non-sterile
single-use catheters sized for adult and pediatric suctioning. The one-hand
operation makes it extremely effective and the product is generally found in
emergency vehicles, hospitals and wherever portable aspiration is a necessity,
including backup support for powered suction systems. The disposable features of
the RES-Q-VAC reduce the risk of contaminating the health professional from HIV
or SARS when suctioning a patient or during post treatment cleanup. All of the
parts that connect to the pump are disposable.
We recently introduced a new version of the RES-Q-VAC with the addition of a
portable LED white light, which attaches to the canister assembly. The light is
fully malleable and can direct light during operations when lighting is poor or
at night. We have our latest version of the RES-Q-VAC called Ultra which
contains all of our latest enhancements. We have begun marketing the RES-Q-VAC
UTRA both domestically and with a distributor in Italy.
A critical component and advantage of the RES-Q-VAC ULTRA 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.
We have also added new connectors to our pediatric catheters, which allow them
to connect directly to the adult containers with FSP. These connectors allow
pediatric suctioning with the benefit of the Full Stop Protection device as well
as with sterile catheters. Many infants are born with contagious diseases and
the new system eliminates this concern among paramedics during an emergency
delivery.
A critical advantage of our RES-Q-VAC airway suction system is versatility. With
the addition of Full Stop Protection, we created specific custom RES-Q-VAC kits
for various vertical markets:
Emergency Medicine - we make several special kits for emergency use, which
contain all the catheters necessary to treat adults as well as infants or
children. These first responder kits are generally non-sterile. We also have
special attachments available for the advanced paramedic to treat patients who
are intubated.
Respiratory - in-home care, long term care, situations requiring frequent
suctioning such as cystic fibrosis patients, patients with swallowing disorders,
elderly, patients on ventilators and with tracheostomies all benefit from the
portability, cost and performance of the RES-Q-VAC. In hospitals, the RES-Q-VAC
provides emergency back up due to power loss or breakdown of the wall suction
system.
Page 18
Hospital Use - for crash carts, the emergency room, patients in isolation,
moving patients throughout the hospital (e.g., from ICU to Radiology) and backup
for respiratory, RES-Q-VAC is available sterile with Full Stop Protection for
the ultimate in performance and to meet all the OSHA regulations and CDC
guidelines for use in treating patients in isolation, and in any location.
Hospitals are required under the EMTALA regulations to provide emergency
treatments to patients anywhere in the primary facility and up to 250 yards
away. The RES-Q-VAC insures full compliance with these regulations and helps
minimize unfavorable outcomes and potential lawsuits 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, which can be left by the bedside for rapid use
during critical times.
Dental Applications - we offer a version of the RES-Q-VAC, called DENTAL-EVAC
which addresses the needs of oral surgeons for emergency back up suction during
a procedure. DENTAL-EVAC is supplied with the dental suction attachments such as
saliva ejector and high volume evacuator.
Military Applications - due to its lightweight, portability, and rapid
deployment, we believe that the RES-Q-VAC is ideal for any military situation.
In addition, rapid, aggressive, and repeated suctioning best treats exposure to
chemical weapons of mass destruction such as Sarin. We believe that the
RES-Q-VAC's compact size, powerful pump, and full protection of the user from
any contamination, gives us a competitive edge in this market.
RES-Q-VAC is sold domestically and internationally by emergency medical device
distributors. These distributors generally sell to the end user and advertise
these products in relevant publications and in their catalogs.
COMPETITION FOR THE RES-Q-VAC
-----------------------------
Currently there are a number of competitive devices built in China such as Ambu
Res Cue Pump and Easy Breezer, which are essentially copies of the RES-Q-VAC
technology, and are available at lower costs. There is also a device called
V-Vac made by Laerdal which has strong representation. None of these devices
have our patented Full Stop Protection filter, or are available sterile. The
RES-Q-VAC currently has greater performance and while lower cost devices
initially did affect our sales, currently it appears that we are increasing and
maintaining sales in this market. However with the decrease in funding to the
emergency medical market due to an economic downturn, there can be no assurance
that our sales will continue at the current level, or that these lower cost
devices will not begin to erode our markets.
Page 19
TRADE SHOWS
-----------
We continue to support both of our main product lines at both National and
International tradeshows. In March we exhibited at both the NHIA: National Home
Infusion Association's Annual Conference and Exposition and the EMS Today show
held in Baltimore, MD. NHIA represents the interests of organizations that
provide alternate-site infusion and specialized pharmacy products and services
to the entire spectrum of home-based patients, while EMS Today was for the
promotion of RES-Q-VAC to the EMS market. In May, we exhibited at INS: Infusion
Nurses Society Annual Meeting and Industrial Exhibition in Nashville, TN; the
largest meeting for infusion nursing professionals in the United States. In June
we traveled to Orlando, FL for the IDF: Immune Deficiency Foundation National
Conference which is the largest gathering of patients with primary
immunodeficiency diseases in the world. We have also reserved our space for the
Medica 2009 trade show to be held in Dusseldorf, Germany this November. Although
these shows are primarily for the Freedom60 product line, we are in the process
of seeking additional tradeshows for the promotion of RES-Q-VAC. This quarter in
May for RES-Q-VAC, we also provided a massive in-service of about 4,000 nurses
to a major hospital in Miami, FL.
PART I ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART I ITEM 4. CONTROLS AND PROCEDURES
The Company's management, including the Company's chief executive officer and
chief financial officer, have evaluated the effectiveness of the company's
"disclosure controls and procedures "as such is defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Based upon their evaluation, the chief executive officer and chief
financial officer concluded that, as of the end of the period covered by this
report, the Company's disclosure controls and procedures were effective for the
purpose of ensuring that the information required to be disclosed in the reports
that the Company files or submits under the Exchange Act with the Securities and
Exchange Commission (the "SEC") (1) is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and (2)
is accumulated and communicated to the Company's management, including its chief
executives and chief financial officers, as appropriate to allow timely
decisions regarding required disclosure.
There have been no changes in the Company's internal control over financial
reporting during the quarter ended August 31, 2009 that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Page 20
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
--------------------------
We are, from time to time, subject to claims and suits arising in the ordinary
course of business, including claims for damages for personal injuries, breach
of management contracts and employment related claims.
ITEM 1A. RISK FACTORS
---------------------
Not required for Smaller reporting companies
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
--------------------------------------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
----------------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
No matters were submitted to a vote of security holders of the Company during
the quarter ended August 31, 2009.
ITEM 5. OTHER INFORMATION
--------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) EXHIBITS
31.1 Certification of Chief Executive Officer and Principal Accounting
Officer Pursuant to Section 302 of Sarbanes-Oxley Act 2002
32.1 Certification of Chief Executive Officer and Principal Accounting
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 2002
Page 21
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934 the Registrant has duly caused this report to be signed on its
behalf by the undersigned; thereunto duly authorized.
REPRO-MED SYSTEMS, INC.
/s/ Andrew I. Sealfon October 15, 2009
---------------------
Andrew I. Sealfon, President, Treasurer,
Chairman of the Board, Director, and
Chief Executive Officer
Page 22