UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES ACT OF
1934
For the quarterly period ended AUGUST 31, 2006
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Commission File Number 0-12305
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REPRO-MED SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 13-3044880
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24 CARPENTER ROAD, CHESTER, NY 10918
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (845) 469-2042
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ( X ) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 31, 2006
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Common stock, $.01 par value 30,613,286 Shares
REPRO-MED SYSTEMS, INC.
TABLE OF CONTENTS
PAGE
PART I ----
ITEM 1. Financial Statements
Balance Sheet (Unaudited) - August 31, 2006 and
February 28, 2006 (Audited) ............................................... 3
Statements of Operations (Unaudited) - for the three-months
ending August 31, 2006 and August 31, 2005 ................................ 5
Statements of Cash Flow (Unaudited) - for the three months
ending August 31, 2006 and August 31, 2005 ................................ 6
Notes to Unaudited Financial Statements ................................... 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............................. 8
PART II
ITEM 1. Legal Proceedings ................................................ 14
ITEM 2. Changes in Securities ............................................ 14
ITEM 3. Defaults Upon Senior Securities .................................. 14
ITEM 4. Submission of Matters to a Vote of Security Holders .............. 14
ITEM 5. Other Information ................................................ 14
ITEM 6. Exhibits and Reports on Form 8-K ................................. 15
2
REPRO-MED SYSTEMS, INC.
BALANCE SHEET
AUGUST 31, February 28,
2006 2006
(UNAUDITED) (AUDITED)
----------- -----------
ASSETS
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CURRENT ASSETS
- --------------
Cash & Cash Equivalents ...................... $ 120,948 26,753
Accounts Receivable, net ..................... 167,052 147,579
Inventory .................................... 423,363 347,392
Prepaid Expenses ............................. 28,715 28,182
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TOTAL CURRENT ASSETS ......................... 740,078 549,906
PROPERTY & EQUIPMENT, NET .................... 236,524 268,096
OTHER ASSETS
- ------------
Patents, net of amortization ................. 31,870 35,214
Goodwill, net of amortization ................ 8,789 8,969
Security Deposits ............................ 27,652 27,652
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TOTAL OTHER ASSETS ........................... 68,311 71,835
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TOTAL ASSETS ................................. $ 1,044,913 $ 889,837
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES
- -------------------
Accounts Payable ............................. $ 326,149 $ 284,095
Notes Payable to Related Parties ............. 45,618 6,834
Accrued Expenses ............................. 99,502 46,172
Note Payable to Bank ......................... - 198,553
Accrued Payroll and Related Taxes ............ 9,244 17,030
Accrued Interest ............................. 58,238 42,663
Accrued Preferred Stock Dividends ............ 36,000 32,000
Current Portion Capital Lease Obligations .... 4,080 9,437
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TOTAL CURRENT LIABILITIES .................... 578,831 636,784
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OTHER LIABILITIES
- -----------------
Capital Lease Obligations,
Less Current Portion ......................... - 616
Deferred Capital Gain Income ................. 281,016 292,256
Long-Term Debt - Notes Payable ............... 905,000 530,000
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TOTAL LIABILITIES ............................ $ 1,764,847 $ 1,459,656
=========== ===========
(continued)
3
REPRO-MED SYSTEMS, INC.
BALANCE SHEET
(continued)
AUGUST 31, February 28,
2006 2006
(UNAUDITED) (AUDITED)
----------- -----------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock, 8% Cumulative,
liquidation value $100,000 Par Value,
$0.01 Authorization 2,000,000 Shares
Issued & Outstanding 10,000 Shares @
August 31, 2006 and February 28, 2006 ....... 100 100
Common Stock, $.01 Par Value, Authorized
50,000,000 Shares, 30,613,286 shares and
29,012,286 shares issued and outstanding
at August 31, 2006 and February 28, 2006,
Respectively ................................ 306,383 290,123
Additional Paid-in Capital ................... 2,511,288 2,446,248
Accumulated Deficit .......................... (3,395,705) (3,164,290)
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(577,934) (427,819)
Less Treasury Stock, 2,275,000 shares at
August 31, 2006 and February 28, 2006 ........ (142,000) (142,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICT) ......... (719,934) (569,819)
----------- -----------
TOTAL LIABILITIES & STOCKHOLDER'EQUITY ....... $ 1,044,913 $ 889,837
=========== ===========
4
REPRO-MED SYSTEMS, INC.
STATEMENTS OF OPERATIONS
UNAUDITED
FOR THE 3 MONTHS ENDED FOR THE 6 MONTHS ENDED
AUG 31, 2006 AUG 31, 2005 AUG 31, 2006 AUG 31, 2005
------------ ------------ ------------ ------------
(Restated) (Restated)
SALES
Net Sales of Products ........ $ 416,009 $ 419,335 $ 763,733 $ 801,637
COST AND EXPENSES
Cost of Goods Sold ........... 144,690 171,948 295,000 350,605
Selling, General &
Administrative Expenses ..... 224,169 243,737 510,111 504,834
Research and Development ..... 11,567 7,675 21,632 18,636
Stock-Based Compensation ..... 10,000 - 10,000 -
Depreciation and
Amortization ................ 15,886 20,377 35,096 40,481
------------ ------------ ------------ ------------
TOTAL COST AND EXPENSES ...... 406,312 443,737 871,839 914,556
------------ ------------ ------------ ------------
(LOSS) FROM OPERATIONS ....... 9,697 (24,402) (108,106) (112,919)
Non-Operating Income (Expense)
Interest (Expense) ......... (27,600) (19,544) (47,063) (37,317)
Other Financing Costs ...... (71,300) (1,250) (71,300) (42,500)
Interest & Other Income .... 54 1,963 54 3,578
------------ ------------ ------------ ------------
(98,846) (18,831) (118,309) (76,239)
------------ ------------ ------------ ------------
(LOSS) BEFORE INCOME TAXES ... (89,149) (43,233) (226,415) (189,158)
Provision for
Income Taxes ................. - (1,000) (1,000) (1,000)
------------ ------------ ------------ ------------
NET (LOSS) AFTER TAXES ....... $ (89,149) $ (44,233) $ (227,415) $ (190,158)
============ ============ ============ ============
(LOSS) PER COMMON SHARE
Primary ...................... $ (0.01) $ (0.01) $ (0.01) $ (0.01)
Fully Diluted ................ $ (0.01) $ (0.01) $ (0.01) $ (0.01)
Average Common Shares
Outstanding .................. 30,613,286 26,427,000
============ ============
See Accompanying Notes to Financial Statements
5
REPRO-MED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
FOR THE SIX MONTHS ENDED
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August 31, August 31,
2006 2005
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) .................................. $(227,415) $(190,158)
Adjustments to reconcile net loss to cash
used in operating activities:
Stock-Based Compensation ........................... 11,250 42,500
Depreciation and Amortization ...................... 35,096 40,481
Capital Gain - Building Lease ...................... (11,240) (10,865)
Decrease (Increase) in Accounts Receivable ......... (19,473) 4,087
Decrease (Increase) in Inventory ................... (75,971) 13,116
Decrease (Increase) in Prepaid Expenses ............ (533) 14,338
Decrease (Increase) in Accounts Payable ............ 42,054 47,578
Decrease (increase) in Accrued Expenses ............ 129,811 (28,323)
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NET CASH (USED IN) OPERATIONS ...................... (116,421) (67,246)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures ............................... - (6,657)
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NET CASH USED IN INVESTING ACTIVITIES .............. - (6,657)
CASH FLOW PROVIDED BY FINANCING ACTIVITIES
Increase in Notes Payable - President and Others ... 413,784 80,000
Preferred Stock Dividend ........................... (4,000) (4,000)
Repayment of Bank Loan ............................. (198,553) -
Payments, Increased Obligations on
Capitalized Leases ................................. (616) (12,316)
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NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 210,615 63,684
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NET (DECREASE) INCREASE IN CASH .................... 94,194 (10,219)
Cash and Cash Equivalents, beginning of period ..... 26,753 37,330
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Cash and Cash Equivalents, end of period ........... $ 120,947 $ 27,111
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest ......................................... $ 47,063 $ 26,010
Income Taxes ..................................... - 1,000
See Accompanying Notes to Financial Statements
6
REPRO-MED SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
UNAUDITED
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with instructions to Form 10-QSB. Accordingly, they do not
include all of the information and disclosures required for annual financial
statements. These financial statements should be read in conjunction with the
financial statements and related footnotes for the year ended February 28, 2006
included in the Form 10-KSB for the year then ended.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of August 31, 2006 and the results of operations and cash flows for
the six month period ended August 31, 2006 and 2005 have been included.
The results of operations for the three-month period ended August 31, 2006, are
not necessarily indicative of the results to be expected for the full year. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Form 10-KSB as filed with the Securities and Exchange
Commission for the year ended February 28, 2006.
STOCKHOLDERS' EQUITY/NOTES PAYABLE
In connection with the Company's convertible notes, the Company is obligated to
issue four shares of its common stock each year for each dollar of principal
borrowed. As of May 31,2006 the Company issued an additional 1,401,000 shares
for previously executed note agreements.
GOING CONCERN
As shown in the accompanying financial statements, for the three months ended
August 31, 2006 the Company had an operating profit of $9,697, although, due to
interest and other financing costs incurred, had a net loss of $89,149 and has
an accumulated deficit of $3,395,705. Additionally, for the three months ended
August 31, 2006, the Company had a positive working capital of $161,247. For the
six months ended August 31, 2006 the Company had an operating loss of $108,106
and, due to interest and other financing costs incurred, had a net loss of
$227,415 and had an accumulated deficit of $3,395,705. The Company is seeking to
raise additional working capital through debt or equity channels and is working
with direct and outside distributors to increase the market share in the
European and U.S. markets. However, even if the Company does raise capital
through debt or equity channels or increase its sales through new strategies,
there can be no assurances that the net proceeds of the capital raised or the
revenue generated from the new marketing strategies will be sufficient to enable
it to develop business to a level where it will generate profits and cash flows
from operations.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. These financial
statements do not include any adjustments relating to the recovery of the
recorded assets or the classification of the liabilities that might be necessary
should the Company be unable to continue as a going concern.
7
RELATED PARTY LOANS
During the quarter ended August 31, 2006, the President and Chief Executive
officer acquired certain receivables from the Company at face value which are
paid back as the receivables are collected.
During the quarter ended August 31, 2006 a member of the Company's Board of
Directors made a series of loans to the Company totaling $325,000 memorialized
by a promissory note due April 30, 2008. $200,000 of this capital was used to
satisfy the M&T loan. The Note carries a 6% annual interest rate and grants the
Holder 150,000 warrants to purchase RMS common stock at ten (10) cents per
share. The Company has given the holder the right to participate, at the Holders
option, in any debt or equity offering made by the Company prior to repayment
with the right to apply the note to such participation.
PART I ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-QSB contains certain "forward-looking"
statements as that term is defined in the federal securities laws. Generally
these statements relate to business plans or strategies, projected or
anticipated benefits or other consequences of managements plans or strategies,
projected or anticipated benefits from acquisitions to be made by us, or
projections involving anticipated revenues, earnings or other aspects of our
operating results. The events described in forward-looking statements contained
in this Quarterly Report may not occur. The words "may," "will," "expect,"
"believe," "anticipate," "project," "plan," "intend," "estimate," and
"continue," and their opposites and similar expressions are intended to identify
forward-looking statements. We caution you that these statements are not
guarantees of future performance or events and are subject to a number of
uncertainties, risks and other influences, many of which are beyond our control,
that may influence the accuracy of the statements and the projections upon which
the statements are based. Factors which may affect our results include, but are
not limited to, the risks and uncertainties discussed in Item 6 of this Annual
Report under "Factors That May Affect Future Results and Financial Condition".
Any one or more of these uncertainties, risks and other influences could
materially affect our results of operations and whether forward-looking
statements made by us ultimately prove to be accurate. Our actual results,
performance and achievements could differ materially from those expressed or
implied in these forward-looking statements. We undertake no obligation to
publicly update or revise any forward-looking statements, whether from new
information, future events or otherwise.
THREE MONTHS ENDED AUGUST 31, 2006 AND 2005
Sales of the FREEDOM60 Syringe Infusion System and related accessories increased
88% in the quarter ending August 31, 2006, as compared to the same period in
2005. We attribute this to increased marketing and sales efforts along with the
increasing popularity of the FREEDOM60 in administering IgG subcutaneously. We
also experienced a 42% increase in revenues from non-core products (Gyneco,
Osbon). However, sales of the RES-Q-VAC and accessories declined 40% quarter
over quarter. This more than offset our revenue increases in other product
lines.
8
As a result, total sales for the second quarter declined 1% to $416,009
compared to $419,335 in 2005. Although U.S. sales increased by 38%, the
International market declined over 59% (or $112,560) with the sales decline
concentrated in Europe and the U.K. The Company has increased its sales presence
and been active in trade shows in the UK and European market in an effort to
reverse this trend.
Gross profit (Net Sales less Cost of Goods Sold) increased from 59% of net sales
in 2005 to 65% in 2006 due, in part, to price increases, better inventory
controls and management of fixed overhead expenses such as rent, utilities and
insurance that are partially allocated to Cost of Goods Sold.
Selling, general and administrative expense decreased 8% ($19,568) to $224,169
in the quarter ending August 31, 2006 from $243,737 in the corresponding quarter
in 2005 reflecting, in part, cost controls put in place despite an increased
sales and marketing payroll and increased spending on sales and marketing
efforts including mailings, trade shows and associated travel.
Research and development expenses increased by $3,892, or approximately 51%,
from Q-2 2005 to 2006, principally due to increased focus on product
enhancements.
Depreciation and amortization expense decreased by $4,491 period over period as
the assets were written down and some reached their depreciable life.
Interest and financing costs increased substantially period over period to
$117,113 in 2006 from $79,817 as shown in the restated 2005 results. $47,063 of
this amount reflects interest actually paid as a result of the promissory note
program along with an increase in the prime lending rate, to which these
interest rates are tied. $71,300 of this amount reflects the value of the stock
issued in accordance with the financing terms of the program.
The Other Income category was primarily partial reimbursement from a job
training program for production payroll expenses incurred and expensed in FY
2005.
Net Loss increased by $44,916 from a loss of $44,233 in the quarter ended August
31, 2005 to a loss of $89,149 in the quarter ending August 31, 2006. This loss
was due to the interest paid in cash and stock for the promissory note program.
SIX MONTHS ENDED AUGUST 31, 2006 VS. 2005
Despite a 44% increase in FREEDOM60 sales, net sales for the six-months ended
August 31, 2006, caused by lower sales of the Res-Q-Vac, declined approximately
5%, to $763,733 from $801,637 for the six-months ended August 31, 2005. Sales of
the RES-Q-VAC decreased almost 50% for the six-months ended August 31, 2006 vs.
the six-months ended August 31, 2005 due to a softening in the EMS market and
the anticipated lead time in penetrating new RES-Q-VAC markets, including the
hospital market. The Company sales in the non-core Gyneco, Restore and OEM
product lines increased by $41,868 (55%) for the six-months ended August 31,
2006 vs. the six-months ended August 31, 2005.
Gross profit increased to 61% of net sales in 2006 from 56% in 2005.
Selling, general and administrative expense increased 1% ($5,278) to $510,111 in
2006 from $504,834 in 2005.
9
Research and development expenses increased $2,996 from 2005 to 2006.
Depreciation and amortization expense decreased by $5,385 period over period as
the result of equipment reaching the end of its depreciable life and not being
fully replaced by equivalent capital investment.
Interest and financing costs were $37,746 more than the comparable six month
period in 2005, primarily as a result of the shares issued in accordance with
the promissory note program and an increase in the prime interest rate to which
the program is also tied.
Although the losses decreased in the second quarter over the results of the
first quarter, net loss for the six months ended August 31, 2006, increased
$37,257 to a loss of $227,415 from a loss of $190,158 in 2005.
RES-Q-VAC
The RES-Q-VAC(R) Emergency Airway Suction System, is a lightweight, portable,
hand-operated suction device that removes fluids from a patient's airway by
attaching the RES-Q-VAC 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 technician from HIV or SARS
when suctioning a patient or during post treatment cleanup. All of the parts
that connect to the pump are disposable.
A critical component and advantage of the RES-Q-VAC is the Full Stop
Protection(R) filter 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 filter meets the requirement of the
Occupational Safety and Health Administration as described below. The Company
has received a letter from OSHA confirming that the RES-Q-VAC with the Full Stop
Protection falls under the engineering controls of the Bloodborne Pathogen
regulation and that the Products use would fulfill the regulatory requirements.
OSHA 29CFR 1910.1030 - Occupational Exposure to Bloodborne Pathogens requires
that employers of "...emergency medical technicians, paramedics, and other
emergency medical service providers; fire fighters, law enforcement personnel,
and correctional officers... must consider and implement devices that are
appropriate [to contain bloodborne pathogens], commercially available and
effective." These first responders risk exposure to serious disease, and the
employers may risk OSHA violations and lawsuits if they fail to consider
protective measures such as Repro-Med's Full Stop Protection for RES-Q-VAC. The
Company has received a letter from OSHA indicating the RES-Q-VAC meets the
intent of this regulation.
On April 29, 2003, the Centers for Disease Control issued additional guidelines
for the control of SARS (Sudden Acute Respiratory Syndrome) which requires all
suction systems to have filtration equivalent to a HEPA filter to prevent the
spread of this disease. At the current time, we believe that the RES-Q-VAC with
Full Stop Protection is the only portable device to comply with the CDC
directives.
10
We have also added new sturdier connectors to our pediatric catheters, which
allow them to connect directly to the adult containers with Full Stop
Protection. These connectors allow pediatric suctioning with the benefit of the
Full Stop Protection device as well as with sterile catheters. These improved
features come at a lower cost for the user, and a more compact kit for easier
transport. Many infants are born with contagious diseases and the new system
eliminates this concern among paramedics during an emergency delivery. The adult
large bore yankuer is also fitted with an improved connector, for easier
changeability and convenience.
We have begun upgrading our RES-Q-VAC distribution channels by selecting key
distributors to work with as master distribution outlets. The domestic emergency
medical market has softened due to a decrease in Federal reimbursement to state
and city regional areas. We have concluded that we can have more effective
market penetration with major master distributors who will have much greater
sales volume and be able to better support our products.
We consolidated international RES-Q-VAC distribution, as well as our single
point distribution in the UK. We are now providing direct support to our UK
favored partners such as 24 hour deliver in the local currency. We also have
master distribution in Norway, Sweden, Denmark, Iceland, Finland, Estonia,
Latvia, and Lithuania. We are working towards single-point distribution in each
country, where possible. We believe that one main distributor will be more
predisposed to advertising, promotion, and building the product franchise in
each market. In return, we will be able work more closely with the distributors
and be able to hold them accountable for the sales in each region.
We have begun major sales efforts into the hospital market for the RES-Q-VAC.
The features of Full Stop Protection to meet OSHA requirements, sterile
catheters, and the ability of RES-Q-VAC to work during extended power outages,
have created a receptive market, especially in regions which recently have had
major power outages, such as Florida with last years hurricanes and the blackout
in the Northeast. Patients on ventilators, tracheotomy patients, elderly with
swallowing disorders, stroke, heart attack, choke victims--all may need prompt
effective suctioning wherever they are and for whom RES-Q-VAC may be life
saving. This includes locations such as dining rooms, recreations areas,
transportation and outdoor activities, among others.
Currently the bulk of the Company's RES-Q-VAC sales, which represent
approximately 40% of the Company's quarterly revenue, are to emergency rescue
service companies. Over the course of the past few months, RMS has refocused its
selling efforts on the hospital market, directly introducing the Res-Q-Vac
product to over 35 hospitals, including three world class thought leading
institutions that have accepted the Product as their emergency back-up standard.
RMS has also entered into agreements with geographically strategic distributors
to hospital markets, to increase the Company's reach. Entry into the hospital
market is in its early stages, but as is evidenced by the initial response, RMS
believes this will be a strong contributor to the growth of the Company.
In the first quarter we retained a marketing and sales consulting group to
assist the Company in its sales efforts. We have been rebuilding our
distribution network and have begun an aggressive sales effort for the RES-Q-VAC
into the hospital market as we continued our direct mail and telephone marketing
program to introduce RES-Q-VAC to the nursing home market and now the hospital
market. We also conducted discussions with nursing home chains, hospitals and
distributors in this market. We plan to continue the mail and telemarketing
campaign to the greatest extent possible with our resources.
11
We are focusing our greatest efforts to introduce the RES-Q-VAC into specific
areas of hospitals, including crash carts, respiratory therapy and other
departments. The non-battery, non-electric feature of the RES-Q-VAC appeals to
hospitals which wish to reduce or avoid the costs associated with maintaining
battery operated equipment in reliable, working order.
FREEDOM60
The FREEDOM60(R) Syringe Infusion Pump is designed for ambulatory medication
infusions. Ambulatory infusion pumps are most prevalent in the home care market.
Other potential applications for the FREEDOM60 are pain control, the infusion of
specialized drugs such as IgG, and chemotherapy. The home infusion therapy
market is comprised of approximately 4,500 sites of service, including local and
national organizations, hospital-affiliated organizations, and national home
infusion organizations, and produces approximately $4.5 Billion in revenue
annually (Ref: www.nhianet.org). With insurance reimbursement in a severe
decline, there is a tremendous need for a low-cost, effective alternative to
electronic and expensive disposable IV administration devices for the home care
and nursing home market.
The FREEDOM60 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) Premarket
Notification for initial design of the FREEDOM60 as a Class II device was
approved by the FDA in May 1994.
The Company also markets 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 experienced success in using the FREEDOM60 for pain
control, specifically post-operative epidural pain administration. Our European
market also uses the FREEDOM60 for chemotherapy.
We believe there is a new market for the FREEDOM60 for use in Primary Immune
Deficiency, injecting immune globulin (IgG) under the skin as a subcutaneous
administration, as is evidenced by the large growth in the Company's sales of
this product. 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.
12
Historically the Company has marketed the Freedom60 directly and through
specialty distributors. Increased market recognition for this product, and new
subcutaneous medical applications of Immune Globulin treatments create a large
opportunity for this Product. RMS is aggressively pursuing the home care,
hospital and "closed-door" pharmacy markets dedicated to treatments using
intravenous administration, to use the Freedom60 for the application of their
therapies. The annual market size for infusion therapy is over $500 million for
home care and over $1.5 billion for hospitals, once again not including
additional logical market segments, many of which parallel the Res-Q-Vac
markets, such as emergency and military.
TRADE SHOWS
May 1st-3rd, 2006, we exhibited the RES-Q-VAC at the ASPAN show in Orlando, FL
where we introduced the RES-Q-VAC into the hospital market through the American
Society of Perianesthesia Nurses.
In June we exhibited at Ambex in the United Kingdom for the RES-Q-VAC in support
of our network of distributors in the British Isles. Our Director of
International sales, working at one of our favored UK distributor's booth had
the opportunity to meet with many RES-Q-VAC users as well as other international
distributors. We have structured a depot in the UK to better support our sales
and marketing into the UK and throughout Europe. We have begun to further
explore new markets in the UK such as hospitals, nursing homes, veterinary, and
dental.
The Company believes trade shows are important and intends to continue to attend
those shows that relate to its major market horizontals and distribution
networks.
LIQUIDITY AND CAPITAL RESOURCES -
In June of 2006 Company entered into a loan agreement with a director the
proceeds of which were used to repay the $198,553 bank loan from M&T Bank.
In raising capital beginning in February 2004, the Company issued promissory
notes in the total amount of $432,000. These five year promissory notes pay 2%
over prime plus four shares of common stock per year for every year the loan is
in place. The loans are due on March 30, 2009.
To attract marketing and operational assistance the Company retained a business
management company, which, in addition to a monthly fee and success fee also
included the right to earn warrants to acquire 10% of Repro-Med common stock,
exercisable at $.10 share. Such warrants vest based in three stages upon meeting
monthly revenue targets of $250,000, $325,000 and $400,000.
The Company entered into an agreement with the management company regarding
payment of accrued consulting charges totaling $50,000. The Company has issued a
Promissory Note evidencing this agreement. The Note, due April 30, 2008, carries
a 6% annual interest rate and grants the Holder the right to participate, at the
Holders option, in any debt or equity offering made by the Company prior to
repayment, with the right to apply the Note to such participation.
Our efforts to enter new markets and expand existing sales channels are
capital-intensive. Access to capital markets for these efforts has been
important in the past, and will continue to be vital as we seek to fully
implement our marketing plans and work toward achieving a positive cash-flow
position.
We continue to pursue capital investment through debt or equity to increase our
marketing and sales efforts, and to enhance our existing products and add to
product lines.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is neither a party to any material litigation, nor to the knowledge
of the officers and directors of the Company, is there any other material
litigation threatened against the Company.
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, 2006.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
(a) 31.1 Certification of Chief Executive Officer and Principal Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
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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 13, 2006
- ---------------------
Andrew I. Sealfon, President, Treasurer,
Chairman of the Board, Director, and
Chief Executive Officer
15