U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON,
D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended November 30,2009
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 November 30,2009, 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 - November 30, 2009 (Unaudited) and
February 28, 2009 ............................................... 3
Statements of Operations (Unaudited) - for the Three-Months and
Nine Months Ended November 30, 2009 and November 30, 2008 ....... 4
Statements of Cash Flows (Unaudited) - for the Nine-Months Ended
November 30,2009 and November 30, 2008 .......................... 5
Notes to Financial Statements ................................... 6-13
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................... 14-20
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ...... 20
ITEM 4. Controls and Procedures ......................................... 20
PART II OTHER INFORMATION
--------------------------
ITEM 1. Legal Proceedings ............................................... 21
ITEM 1A. Risk Factors .................................................... 21
ITEM 2. 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
NOVEMBER 30, FEBRUARY 28,
2009 2009
------------ ------------
UNAUDITED
ASSETS
CURRENT ASSETS:
Cash .................................................................. $ 577,354 $ 519,209
Accounts receivable less allowance for doubtful accounts of $29,773 and
$26,783 for November 30, 2009 and February 28, 2009 respectively .. .. 522,803 488,742
Inventory ............................................................. 737,923 621,849
Prepaid expenses ...................................................... 68,563 73,197
Deferred Tax Asset Net of Valuation Allowance of $383,520 and $383,520
for November 2009 and February 2009 respectively ..................... 179,000 306,000
----------- -----------
Total Current Assets .................................................. 2,085,643 2,008,997
----------- -----------
PROPERTY & EQUIPMENT, less accumulated depreciation of $1,242,810 and
$1,197,359 at November 30, 2009 and February 28, 2009 respectively ..... 231,806 228,312
OTHER ASSETS:
Patents, net of accumulated amortization of $95,290 and $91,198 at
November 30, 2009 and February 28, 2009, respectively ................ 36,413 36,335
Goodwill .............................................................. 8,609 8,609
Security deposit ...................................................... 28,156 28,156
----------- -----------
Total Other Assets ...................................................... 73,178 73,100
----------- -----------
TOTAL ASSETS ............................................................ $ 2,390,627 $ 2,310,409
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - current portion ........................................ $ 6,591 $ 4,600
Notes payable to related parties - current portion .................... 36,198 117,660
Deferred capital gain - current portion ............................... 22,481 22,481
Accounts payable ...................................................... 136,682 219,477
Accrued expenses ...................................................... 101,364 142,541
Accrued interest ...................................................... 52,183 46,183
Accrued preferred stock dividends ..................................... 64,000 60,000
Accrued payroll and related taxes ..................................... 22,255 13,783
Warranty liability .................................................... 72,186 93,447
Customer Deposits ..................................................... - 92
----------- -----------
Total Current Liabilities ............................................... 513,940 720,264
----------- -----------
OTHER LIABILITIES
Note payable - less current portion ................................... 29,961 27,719
Notes payable to related parties - less current portion ............... 627,652 655,003
Deferred capital gain less current portion ............................ 185,475 202,335
----------- -----------
Total Other Liabilities ................................................. 843,088 885,057
----------- -----------
Total Liabilities ....................................................... 1,357,028 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 November 30, 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 November 30, 2009
and February 28, 2009 respectively ................................... 355,843 348,293
Additional paid-in Capital ............................................ 3,008,162 2,913,350
Accumulated deficit ................................................... (2,188,506) (2,414,655)
----------- -----------
1,175,599 847,088
Less: Treasury Stock, 2,275,000 shares at cost at November 30, 2009 and
February 28, 2009 .................................................... (142,000) (142,000)
----------- -----------
Total Stockholders' Equity ............................................ 1,033,599 705,088
----------- -----------
Total Liabilities and Stockholders' Equity .............................. $ 2,390,627 $ 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 NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
2009 2008 2009 2008
------------ ------------ ------------ ------------
NET SALES .................................. $ 898,103 $ 853,591 $ 2,658,288 $ 2,490,062
COST AND EXPENSES
Cost of goods sold ....................... 309,800 312,917 928,016 921,852
Selling, general and administrative ...... 457,783 314,947 1,259,020 917,829
Research and development ................. 6,841 6,093 20,850 16,126
Depreciation and amortization ............ 14,891 19,002 49,543 59,598
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES ................... 789,315 652,959 2,257,429 1,915,405
------------ ------------ ------------ ------------
NET OPERATING PROFIT ....................... 108,788 200,632 400,859 574,657
OTHER INCOME/(EXPENSES)
Gain (Loss) Currency Exchange ............ (443) - (3,271) -
Interest Expense ......................... (11,374) (9,339) (35,515) (39,205)
Interest and Other Income ................ 437 - 1,117 8
------------ ------------ ------------ ------------
TOTAL OTHER INCOME/(EXPENSE) ............... (11,380) (9,339) (37,669) (39,197)
------------ ------------ ------------ ------------
NET PROFIT BEFORE TAXES ................. 97,408 191,293 363,190 535,460
Provision for Income Taxes ............. (41,923) - (133,041) -
------------ ------------ ------------ ------------
NET INCOME ............................... $ 55,485 $ 191,293 $ 230,149 $ 535,460
PREFERRED STOCK DIVIDENDS .................. $ - $ - $ 4,000 $ 4,000
------------ ------------ ------------ ------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 55,485 $ 191,293 $ 226,149 $ 531,460
NET INCOME PER COMMON SHARE AVAILABLE TO
COMMON STOCKHOLDERS ..................... - 0.01 0.01 0.02
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 35,584,286 34,829,286 35,309,741 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 NINE MONTHS ENDED
----------------------------
NOVEMBER 30, NOVEMBER 30,
2009 2008
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ............................................... $ 230,149 $ 535,460
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 ......... - 13,230
Depreciation and amortization .......................... 49,543 59,598
Deferred capital gain - building lease ................. (16,860) (16,860)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............. (34,061) (117,026)
(Increase) decrease in inventory ....................... (116,074) (11,274)
(Increase) decrease in prepaid expense ................. 4,634 (23,299)
(Increase) decrease in deferred tax asset .............. 127,000 -
Increase (decrease) in accounts payable ................ (82,795) (191,868)
Increase (decrease) in accrued payroll and related taxes 8,472 4,486
Increase (decrease) in accrued expense ................. (41,177) 31,846
Increase (decrease) in customer deposits ............... (92) (3,786)
Increase (decrease) in warranty liability .............. (21,261) -
Increase (decrease) in accrued interest ................ 6,000 6,000
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................. 132,790 310,716
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment .................... (48,945) (18,523)
Payments for patents ................................... (4,169) (164)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ...................... (53,114) (18,687)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable ............................... 7,837 -
Net payments on note payable to financial institutes ..... - (20,935)
Payments to note payable to related parties .............. (25,763) (15,000)
Payments on notes payable ................................ (3,605) (3,122)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES ...................... (21,531) (39,057)
NET INCREASE, IN CASH AND CASH EQUIVALENTS ................ 58,145 252,972
CASH BEGINNING OF YEAR ..................................... 519,209 95,561
--------- ---------
CASH END OF YEAR ........................................... $ 577,354 $ 348,533
========= =========
Supplemental Information
Cash paid during the year for:
Interest ................................................. $ 12,251 $ 11,739
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 November 30, 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 November 30, 2009 and the results
of operations and cash flow for the interim periods ended November 30, 2009 and
2008.
The results of operations for the three and nine-month periods ended November
30, 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
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 $562,520 and $689,520
for the periods ended November 30, 2009 and February 28, 2009, respectively. The
deferred tax assets have been offset by valuation allowances of $383,520 for the
periods ended November 30, 2009 and February 28, 2009, respectively. 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 nine-months ended November 30, 2008. For
the three and nine-months ended November 30, 2009, $41,195 and $127,000 were
recognized related to the use of a portion of these benefits for current taxable
income.
When tax returns are filed, it is highly certain that some positions taken would
be sustained upon examination by the taxing authorities, while others are
subject to uncertainty about the merits of the position taken or the amount of
the position that would be ultimately sustained. The benefit of a tax position
is recognized in the financial statements in the period during which, based on
all available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of
tax benefit that is more than 50% likely of being realized upon settlement with
the applicable taxing authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described above is reflected
as a liability for unrecognized tax benefits in the balance sheet along with any
associated interest and penalties that would be payable to the taxing
authorities upon examination. The Company does not have any unrecognized tax
benefits at November 30, 2009 and February 28, 2009 or during the periods then
ended. No unrecognized tax benefits are expected to arise within the next twelve
months.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the respective assets.
Routine maintenance, repairs and replacement costs are expensed as incurred and
improvements that extend the useful life of the assets are capitalized. When
property and equipment are sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is recognized in operations.
Page 7
NET INCOME PER COMMON SHARE
Basic earnings per share is computed on the weighted average of common shares
outstanding during each year. 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 NOVEMBER 30, 2009 (NUMERATOR) (DENOMINATOR) AMOUNT
------------------------------------ ----------- ------------- ---------
Basic Net Income Per Common Share
Income available ................. $ 55,485 35,584,286 -
Preferred stock dividends ........ - - -
Options includable ............... - 2,799,837 -
Convertible preferred stock ...... - 192,307 -
---------- ---------- ---------
Diluted Net Income Per Common Share $ 55,485 38,576,430 -
---------- ---------- ---------
INCOME SHARES PRE-SHARE
NINE-MONTHS ENDED NOVEMBER 30, 2009 (NUMERATOR) (DENOMINATOR) AMOUNT
------------------------------------ ----------- ------------- ---------
Basic Net Income Per Common Share
Income available ................. 226,149 35,309,741 0.01
Preferred stock dividends ........ 4,000 - -
Options includable ............... - 2,799,837 -
Convertible preferred stock ...... - 192,307 -
---------- ---------- ---------
Diluted Net Income Per Common Share 230,149 38,301,885 0.01
---------- ---------- ---------
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Important estimates include but are not limited to, asset lives,
valuation allowances, inventory and accruals.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
In determining the allowance for doubtful accounts the Company analyzes the
aging of accounts receivable, historical bad debts, customer creditworthiness
and current economic trends.
Page 8
REVENUE RECOGNITION
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 collect ability of the sales price is reasonably assured. The Company's
revenue stream is derived from the sale of an assembled product. Other service
revenues are recorded as the service is performed. Shipping and handling costs
are generally billed to customers and are not included in sales. The Company
does not accept return of goods shipped unless it is a Company error. The
Company does not grant sales allowances other than an occasional 1% discount for
payments made within 30 days. The only credits provided to customers are for
defective merchandise and sales incentives are occasional advertising in
customer catalogues.
STOCK-BASED COMPENSATION
The Company accounts for employee stock based compensation and stock issued for
services using the fair value method. The measurement date of shares issued for
services is the date when the counterparty's performance is complete.
The Company accounts for stock issued for services using the fair value method.
The measurement date of shares issued for service is the date when the
counterparty's performance is complete.
SUBSEQUENT EVENTS
-----------------
The Company has evaluated subsequent events through January 14, 2010, the date
on which the financial statements were issued.
RECLASSIFICATIONS
-----------------
Certain amounts in the February 28, 2009 and November 30, 2008, financial
statements have been reclassified to conform to the presentation used in the
November 30, 2009,financial statements.
NOTE 2 INVENTORY
Inventory is valued at the lower of average cost or market and consists of the
following at:
November 30, 2009 February 28, 2009
----------------- -----------------
Raw materials ........ $452,952 $470,426
Work in progress ..... 45,896 37,391
Finished goods ....... 239,075 114,032
-------- --------
$737,923 $621,849
-------- --------
Page 9
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
November 30, February 28, Estimated
2009 2009 Useful Lives
------------ ------------ ------------
Furniture and office equipment .... $ 488,635 $ 459,840 5 years
Manufacturing equipment and
tooling .......................... 985,981 965,831 7-12 years
------------ ------------
1,474,616 1,425,671
Less: accumulated amortization
and depreciation ................. 1,242,810 1,197,359
------------ ------------
Property and Equipment, Net ....... $ 231,806 $ 228,312
------------ ------------
Depreciation expense was $13,459 and $17,744 for the three months ended November
30, 2009 and November 30, 2008, respectively. Depreciation expense was $45,451
and $52,187 for the nine months ended November 30,2009 and November 30 ,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 November 30,
2009 and November 30, 2008, and $16,125 for nine months ended November 30,2009
and November 30,2008. The original lease agreement has expired and the Company
is currently on a month-to-month basis for rental payments.
Page 10
NOTE 5 LONG-TERM DEBT
Long-term debt consists of the following at:
November 30, 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 ...... 28,855 32,319
In February 2009, the Company refinanced a
previous loan borrowed from a Director of the
Company. The previous 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 ......................................... 563,850 672,663
In October 2009, the Company entered into an
equipment loan with Key Equipment Finance. The
loan bears interest at a rate of 7.50% and is
payable in 48 monthly installments of $189 ....... 7,697 -
-------- --------
700,402 804,982
Less current portion ............................. 42,789 122,260
-------- --------
Long-term portion ................................ $657,613 $682,722
-------- --------
Aggregate maturities as required on long-term debt at November 30, 2009 are:
2010 ........ $ 42,789
2011 ........ 145,473
2012 ........ 48,383
2013 ........ 51,294
2014 ........ 52,415
Thereafter .. 360,048
---------
$ 700,402
---------
Page 11
NOTE 6 STOCK OPTIONS
On June 6, 2007, the Board of Directors approved the issuance of 4,360,000 stock
options to key employees and directors of the Company. The options have an
expiration date of 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 nine-months ended November 30, 2009, $19,312 in option expense was
recorded because the Company records the expense semi-annually from the grant
date. As of November 30, 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 November 30, 2009 3,400,000 0.06 2.5
--------- ---------------- ----------------
Exercisable at November 30, 2009 2,630,000 0.06 2.5
--------- ---------------- ----------------
A summary of the status of the Entity's nonvested shares as of November 30,
2009, and changes during the nine-months ended November 30, 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 November 30, 2009 770,000 0.06
--------- ---------------------
Page 12
NOTE 7 SALE-LEASEBACK TRANSACTION - OPERATING LEASE
On February 25,1999, the Company entered into a sale-leaseback arrangement
whereby the Company sold its land and building at 24 Carpenter Road in Chester,
New York and leased it back for a period of 20 years. The leaseback is accounted
for as an operating lease. The gain of $449,617 realized in this transaction has
been deferred and is amortized to income in proportion to rental expense over
the term of the related lease.
At November 30,2009 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 .. 563,142
----------
$1,225,662
==========
Rent expense aggregated $33,126 for the three months ended November 30, 2009 and
$30,000 for the three months ended November 30, 2008. Rent expense aggregated
$99,378 for the nine months ended November 30,2009 and $90,000 for the nine
months ended November 30, 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 $28,000. The provision has
been recorded in the Company's financial statements.
Page 13
PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------
This Quarterly Report on Form 10-Q contains certain "forward-looking" statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995) and information relating to us that are based on the beliefs of the
management, as well as assumptions made by and information currently available.
Our actual results may vary materially from the forward-looking statements made
in this report due to important factors such as uncertainties associated with
future operating results, unpredictability related to Food and Drug
Administration regulations, introduction of competitive products, limited
liquidity, reimbursement related risks, government regulation of the home health
care industry, success of the research and development effort, market acceptance
of Freedom60(R), availability of sufficient capital to continue operations and
dependence on key personnel. When used in this report, the words "estimate,"
"project," "believe," "anticipate," "intend," "expect" and similar expressions
are intended to identify forward-looking statements. Such statements reflect
current views with respect to future events based on currently available
information and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. These
statements involve risks and uncertainties with respect to the ability to raise
capital to develop and market new products, acceptance in the market place of
new and existing products, ability to penetrate new markets, our success in
enforcing and obtaining patents, obtaining required Government approvals and
attracting and maintaining key personnel that could cause the actual results to
differ materially. Repro-Med does not undertake any obligation to release
publicly any revision to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
THREE MONTHS ENDED NOVEMBER 30, 2009 VS. 2008
---------------------------------------------
Sales of our Freedom60 and related accessories increased 13% for the quarter
ended November 30, 2009 over the previous quarter and resulting in total gross
sales increasing by 5.4% from $855,617 to $901,454 for the three-month period
ending November 30, 2009 as compared to the quarter ending November 30, 2008.
Returns and allowances were insignificant.
We have taken a portion of our revenues for investment back into the Company to
develop new products and achieve more market penetration. Specifically, spending
on more marketing for these new products, which includes increased presence at
trade shows, additional customer service representatives, and the hiring of a
sales associate in Europe increased these costs by 96% over the quarter ending
November 2008. Additionally, we improved our infrastructure to meet our expanded
needs including computer support, general maintenance as well as increases in
production staff and general overhead which resulted in these costs increasing
by 64%.
Net profit for the Quarter was $55,485 as compared to $191,293 for the same
quarter in 2008. Cost of goods sold decreased $3,117 or 1% from $312,917 in
November 30, 2008 to $309,800 in November 30, 2009. Selling, General and
Administrative Expense (SG&A) increased 45% to $457,783 from $314,947 quarter
over quarter 2009 vs. 2008, due to increased sales staffing required for new
products. Research and Development increased to $6,841 from $6,093 primarily due
to reallocation of resources from sales to engineering.
Page 14
Sales of the Freedom60 Syringe Infusion System, related accessories and repairs
increased from $636,744 to $694,209, an increase of $57,465 for the third
quarter ending November 30, 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
overall increase of 1% from $168,987 to $169,858 due to higher foreign sales
which offset a decrease in domestic sales. Company sales of non-core products
decreased during the quarter by $12,667 primarily due to an OEM customer
discontinuing one of their product lines.
Interest expense increased by 22% to $11,374 from $9,339 for comparative quarter
in 2008 as a result of refinancing certain notes outstanding in 2008.
NINE MONTHS ENDED NOVEMBER 30, 2009 VS. 2008
--------------------------------------------
Total gross sales increased by 6.9% ($173,063) to $2,669,326 from $2,496,263 for
the nine month period ending November 30, 2009.
We have taken a portion of our revenues for investment back into the Company to
develop new products and achieve more market penetration. Specifically, spending
on more marketing for these new products, which includes increased presence at
trade shows, additional customer service representatives, and the hiring of a
sales associate in Europe increased these costs by 75.1% over the nine months
ending November 2008. Additionally, we improved our infrastructure to meet our
expanded needs including computer support, general maintenance as well as
increases in production staff and general overhead which resulted in these costs
increasing by 42% in the current nine months over the nine months ended November
30, 2008.
Net income shows a profit of $230,149 for the nine months ending November 30,
2009 as compared to $535,460 for the same nine months in 2008. Cost of Goods
sold increased $6,164 or 1%, from $921,852 to $928,016 due to an increase in
production payroll and related benefits and production supplies.
Selling, General and Administrative increases from $917,829 in November 30, 2008
to $1,259,020 in November 30, 2009 or 37% 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.
Research and Development expenses increased $4,724 or 29% from $16,126 in 2008
to $20,850 in 2009.
Depreciation and amortization expenses decreased by $10,055 from $59,598 in 2008
to $49,543 in 2009 as a result of assets reaching their fully depreciated
values.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net Cash provided from Operations was $132,790 as compared with net cash
provided by operations of $310,716 for the nine months ended November 30, 2008.
This decrease is due primarily to a lower net income for the period including
payments for Fiscal 2009 audit fees resulting from a change of auditors and
higher legal fees.
Page 15
In January of 2008 we were notified by The Trade Adjustment Assistance Program
of the Trade Department that our application for a grant of $150,000 was
approved for use to assist us with marketing, ISO and regulatory affairs, and
new product development. The grant matches the company on a 50-50 basis thereby
reducing our costs for these new programs by half. The Trade Adjustment
Assistance Program is a United States Government program to help manufacturing
firms adjust to foreign business competition. The program is authorized by the
Trade Act of 1974 and is administered by the U. S. Department of Commerce. The
program operates through Trade Adjustment Assistance Centers located across the
United States. The New York State area is served by the New York State Trade
Adjustment Assistance Center (NYS TAAC). The NYS TAAC is affiliated with the
Research Foundation of the State University of New York at Binghamton. Minimal
funds were used in the previous year. However, we have initiated these programs
now and intend to complete them by the end of our next fiscal year. At the end
of November 30, 2009 there is approximately $55,000 remaining in payment
assistance from this grant.
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 during nine months ended November 30, 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.
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.
Page 16
The Freedom60 use for Primary Immune Deficiency by injecting immune globulin
(IgG) under the skin as a subcutaneous administration has seen increased usage
especially in Europe over the past year. We have been told by meeting users at
trade shows that his method has provided them with vastly improved quality of
life with much fewer unpleasant side effects over the traditional intravenous
route. The Freedom60 is an ideal system for this administration since the
patient is able to self-medicate at home, the pump is easily configured for this
application, and the Freedom60 is the lowest cost infusion system available in a
heavily cost constrained market. We have begun to advertise one of the main
benefits of the Freedom60 for use with IgG which is that it operates in "dynamic
equilibrium", that is, the pump finds and maintains a balance between the
pressure at the patient's sites and the rate that the pump infuses. This balance
is created by a safe, limited and controlled pressure which adjusts the flow
rate automatically to the patient's needs providing greater convenience and
lower cost for these patients.
Repro-Med Systems' objective is to build a product franchise with Freedom60 and
the sale of patented disposable tubing sets. Freedom60 uses rate-controlled
tubing with standard slide clamp and luer-lock connector on the patient end. Our
patented syringe disc connector ensures that only the Company's Freedom60 tubing
sets will function with the pump. Non-conforming tubing sets, without the
patented disc connector, are ejected from the pump to prevent the danger of an
overdose or runaway pump from injuring the patient.
THE MARKET FOR INFUSION PUMPS & DISPOSABLES
-------------------------------------------
The ambulatory infusion market has been rapidly changing due to reimbursement
issues. Insurance reimbursement has drastically reduced the market share of
high-end electronic type delivery systems as well as high-cost disposable
non-electric devices, providing an opportunity for the Freedom60. We believe
market pressures have moved to consider alternatives to expensive electronic
systems especially for new subcutaneous administrations which usually cannot be
done with gravity. For cost concerns some patients have been trained to
administer intravenous drugs through IV push where the drug is pushed into the
vein directly from a syringe. This is a low-cost option but has been associated
with complications and considered by many to be a high-risk procedure. Thus, the
overall trend has been towards syringe pumps due to the low-cost of disposables.
In order to receive more favorable Medicare reimbursement for our Freedom60
Syringe Infusion System, we had submitted a formal request for a HCPCS coding
verification with the Statistical Analysis Durable Medical Equipment Regional
Carrier (SADMERC). On May 21, 2007 we received a notification from CMS (Centers
for Medicare & Medicaid Services) that the Freedom60 had been re-reviewed for
Medicare billing. It was the determination that the Medicare HCPCS code(s) to
bill the four Durable Medical Regional Carries (DMERCs) should be: E0779
Ambulatory infusion pump, mechanical, reusable, for infusion 8 hours or greater.
The new coding provides for a substantial increase in reimbursement for
providers using an infusion pump for authorized users under Part B of Medicare.
Current approved uses under Medicare include among others, subcutaneous immune
globulin, antivirals, antifungals, and chemotherapeutics.
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.
Page 17
There is the potential for new drugs to enter the market, such as using
Hyaluronidase which can facilitate absorption of IgG, making multiple site
infusions unnecessary and changing the market conditions for devices such as the
Freedom60. We believe the Freedom60 is ideal for all these new drug combinations
but there can be no assurance that these newer drugs will have the same needs
and requirements as the current drugs being used.
There can be no assurance that Medicare will continue to provide reimbursement
for the Freedom60 or they may allow reimbursement for other infusion pumps that
are currently in the market or new ones that may enter shortly, which could
adversely affect our sales into this market.
RES-Q-VAC
---------
The RES-Q-VAC Emergency Airway Suction System is a lightweight, portable,
hand-operated suction device that removes fluids from a patient's airway by
attaching the RES-Q-VAC pump to various proprietary sterile and non-sterile
single-use catheters sized for adult and pediatric suctioning. The one-hand
operation makes it extremely effective and the product is generally found in
emergency vehicles, hospitals and wherever portable aspiration is a necessity,
including backup support for powered suction systems. The disposable features of
the RES-Q-VAC reduce the risk of contaminating the health professional from HIV
or SARS when suctioning a patient or during post treatment cleanup. All of the
parts that connect to the pump are disposable.
We 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 product's use would fulfill the regulatory requirements.
We have also added new connectors to our pediatric catheters, which allow them
to connect directly to the adult containers with FSP. These connectors allow
pediatric suctioning with the benefit of the Full Stop Protection device as well
as with sterile catheters. Many infants are born with contagious diseases and
the new system eliminates this concern among paramedics during an emergency
delivery.
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.
Page 18
Respiratory - in-home care, long term care, situations requiring frequent
suctioning such as cystic fibrosis patients, patients with swallowing disorders,
elderly, patients on ventilators and with tracheostomies all benefit from the
portability, cost and performance of the RES-Q-VAC. In hospitals, the RES-Q-VAC
provides emergency back up due to power loss or breakdown of the wall suction
system.
Hospital Use - for crash carts, the emergency room, patients in isolation,
moving patients throughout the hospital (e.g., from ICU to Radiology) and backup
for respiratory, RES-Q-VAC is available sterile with Full Stop Protection for
the ultimate in performance and to meet all the OSHA regulations and CDC
guidelines for use in treating patients in isolation, and in any location.
Hospitals are required under the EMTALA regulations to provide emergency
treatments to patients anywhere in the primary facility and up to 250 yards
away. The RES-Q-VAC insures full compliance with these regulations and helps
minimize unfavorable outcomes and potential lawsuits 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 national and
international tradeshows. In March, we exhibited at both the National Home
Infusion Association's Annual Conference and Exposition and the EMS Today show
held in Baltimore, MD. The National Home Infusion Association 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 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 Immune Deficiency
Foundation National Conference which is the largest gathering of patients with
primary immunodeficiency diseases in the world. In this quarter ending November
30, 2009 for the Freedom60 line we exhibited at the ECI conference on Immunology
in Berlin in October and also at the Medica Trade show in Dusseldorf, Germany.
We exhibited at the EMS Expo Trade show in Atlanta in October 2009 to support
our RES-Q-VAC in the emergency market.
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 November 30, 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 November 30,2009.
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 January 14, 2010
Andrew I. Sealfon, President, Treasurer,
Chairman of the Board, Director, and
Chief Executive Officer
Page 22