Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended FEBRUARY 28, 2011
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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 Identification No.)
incorporation or organization)
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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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files.) Yes [ ] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K, is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a "large accelerated filer", an
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]
Based on the closing sales price of August 31, 2010, the aggregate market value
of the voting and nonvoting common equity held by non-affiliates of the
registrant was $4,063,435.
The number of issued and outstanding shares of the registrant's common stock,
$.01 par value was 36,577,667 at May 1, 2011, which includes 2,275,000 shares of
Treasury Stock.
REPRO-MED SYSTEMS, INC.
FORM 10-K
INDEX
Page
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FORWARD-LOOKING STATEMENTS ................................................. 3
PART I
Item 1- Business ........................................................ 4
Item 1A- Risk Factors .................................................... 12
Item 1B- Unresolved Staff Comments ....................................... 12
Item 2- Property ........................................................ 13
Item 3- Legal Proceedings ............................................... 13
Item 4- Removed and Reserved ............................................ 13
PART II
Item 5- Market for the Registrant's Common Equity and Related
Shareholder Matters and Issuer Purchases of Equity Securities ... 13
Item 6- Selected Financial Data ......................................... 13
Item 7- Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 14
Item 7A- Quantitative and Qualitative Disclosures about Market Risk ...... 17
Item 8- Financial Statements and Supplementary Data ..................... 17
Item 9- Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures ............................ 34
Item 9A(T)-Controls and Procedures ......................................... 34
Item 9B- Other Information ............................................... 35
PART III
Item 10- Directors, Executive Officers, and Corporate Governance ......... 35
Item 11- Executive Compensation .......................................... 35
Item 12- Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters ...................... 36
Item 13- Certain Relationships and Related Transactions and Director
Independence ................................................. 37
Item 14- Principal Accountant Fees and Services .......................... 37
PART IV
Item 15- Exhibits and Financial Statement Schedules ...................... 38
Signatures ................................................................. 39
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FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT CONTAINS CERTAIN "FORWARD-LOOKING" STATEMENTS AS THAT TERM IS
DEFINED IN THE FEDERAL SECURITIES LAWS. GENERALLY THESE STATEMENTS RELATE TO
BUSINESS PLANS OR STRATEGIES, PROJECTED OR ANTICIPATED BENEFITS OR OTHER
CONSEQUENCES OF MANAGEMENTS PLANS OR STRATEGIES, PROJECTED OR ANTICIPATED
BENEFITS FROM ACQUISITIONS TO BE MADE BY US, OR PROJECTIONS INVOLVING
ANTICIPATED REVENUES, EARNINGS OR OTHER ASPECTS OF OUR OPERATING RESULTS. THE
EVENTS DESCRIBED IN FORWARD-LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT
MAY NOT OCCUR. THE WORDS "MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE,"
"PROJECT," "PLAN," "INTEND," "ESTIMATE," AND "CONTINUE," AND THEIR OPPOSITES AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. WE
CAUTION YOU THAT THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE OR
EVENTS AND ARE SUBJECT TO A NUMBER OF UNCERTAINTIES, RISKS AND OTHER INFLUENCES,
MANY OF WHICH ARE BEYOND OUR CONTROL, THAT MAY INFLUENCE THE ACCURACY OF THE
STATEMENTS AND THE PROJECTIONS UPON WHICH THE STATEMENTS ARE BASED. FACTORS THAT
MAY AFFECT OUR RESULTS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS AND
UNCERTAINTIES DISCUSSED IN ITEM 7 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.
Page 3
PART I
ITEM 1. BUSINESS
THE COMPANY
BUSINESS OF REGISTRANT
REPRO-MED Systems, Inc. ("REPRO-MED," or "RMS Medical Products" or the
"Company"), was incorporated in the State of New York in March of 1980. The
Company designs, manufactures, and markets proprietary medical devices primarily
for the ambulatory infusion market and emergency medical applications. The FDA
regulates these products. The Company's development and marketing focus are
primarily concentrated on the FREEDOM60(R) Syringe Infusion System and
accessories, and the RES-Q-VAC(R) Emergency Medical Suction System.
CORPORATE HISTORY
Repro-Med Systems, Inc. was incorporated under the laws of the State of New York
in March 1980. The corporate offices are located at 24 Carpenter Road, Chester,
New York 10918. The telephone number is 845-469-2042, the fax is 845-469-5518,
and the Internet site is www.rmsmedicalproducts.com.
PRODUCTS
FREEDOM60(R) SYRINGE INFUSION SYSTEM
The FREEDOM60(R) Syringe Pump uses an innovative "engine" to create a constant
pressure drive system which we believe results in substantially greater safety,
reliability, reduced discomfort for subcutaneous applications, and an overall
higher quality infusion than other devices on the market - all at a lower cost.
The basic drive mechanism used in the FREEDOM60(R) represents the first of a
line of products, which we intend to develop to broaden the product applications
and appeal.
FREEDOM60(R) uses precision rate-controlled tubing with standard slide clamp and
luer-lock connector on the patient end. Our patented luer disc connector ensures
that only the Company's FREEDOM60(R) tubing sets will function with the pump.
Non-conforming tubing sets, without the patented disc connector, are ejected
from the pump to prevent the danger of an overdose or runaway pump from injuring
the patient. We are achieving our objective of building a product franchise with
FREEDOM60(R) and the sale of patented disposable tubing sets.
Our proprietary technology employed in the FREEDOM60(R) uses constant pressure
to administer drugs. FREEDOM60(R) avoids an important problem faced by
electronic pumps currently on the market, which employ constant flow mechanisms
that result in potentially dangerous, high pressure placed on indwelling
catheters or under the skin. In order to protect the patients, these pumps must
contain an overpressure sensor to shut the pump off when a potentially
threatening pressure is detected. Some of these electronic pumps generate
extremely high pressures exceeding 60psi before the over pressure system will
activate. Also with these systems, the alarm can falsely trigger halting
administration until a health professional can verify that the infusion is in
fact safe and the pump may be reactivated. In either case, the patient is at
risk from damaging pressures or not receiving the medication required.
Other unsafe conditions of conventional equipment include runaway
administrations; overdose due to programming errors or pump failure, and
over-pressure resulting in burst blood vessels or failed internal access
devices. We believe that the increasing sales of pumps and tubing sets for the
FREEDOM60(R) demonstrate that the FREEDOM60(R) eliminates these potential
outcomes and ensures a safe, constant, controlled infusion. Electronic devices
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will increase infusion pressure while attempting to continue an infusion at the
programmed rate, while the FREEDOM60(R) design maintains a safe constant
pressure and thereby automatically reduces the flow rate as required, a process
we refer to as "dynamic equilibrium," if any problems of administration occur.
The FREEDOM60(R) Syringe Infusion Pump is designed for ambulatory medication
infusions. Ambulatory infusion pumps are most prevalent in the home care market
although we believe there is potential in the hospital setting as well. Other
potential applications for the FREEDOM60(R) include 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 home care. The
FREEDOM60(R) provides a high-quality delivery to the patient at costs comparable
to gravity-driven infusions 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(R) 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(R) delivers accurate infusion rates and uniform flow
profiles providing consistent transfer of medication. The FDA approved a Form
510(k) Pre-market Notification for initial design of the FREEDOM60(R) as a Class
II device in August 1994.
The Company also had designed and manufactured the FREEDOM60(R)-FM, an enhanced
version of the FREEDOM60(R), which contains an electronic flow monitor system
that provides occlusion and end of infusion alarm. This product was directed at
nursing homes, hospitals, and pediatric ambulatory applications where alarms are
generally preferred for nursing acceptance. Due to the performance of the basic
FREEDOM60(R), specifically the constant flow feature which tends to inhibit the
formation of clots, there were no reported concerns on this issue and thus very
limited demand for the alarm version which is no longer in production.
We have expanded the use of the FREEDOM60(R) to cover most antibiotics including
the widely used and somewhat difficult to administer Vancomycin. We have also
found a following for FREEDOM60(R) for use in treating thalassemia with the drug
Desferal (R). In Europe, we found success in using the FREEDOM60(R) for pain
control, specifically post-operative epidural pain administration. Our European
market also uses the FREEDOM60(R) for chemotherapy and subcutaneous immune
globulin.
The FREEDOM60(R) use for Primary Immune Deficiency by injecting immune globulin
(IgG) under the skin as a subcutaneous administration (SCIG) has continued to
increase during the past year. This method has provided patients with vastly
improved quality of life with much fewer unpleasant side effects over the
traditional intravenous route. The FREEDOM60(R) 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(R) is the lowest cost
infusion system available in a heavily cost constrained market. We have begun to
promote one of the main benefits of the FREEDOM60(R) for use with IgG, which is
that it operates in "dynamic equilibrium"; that is the pump finds and maintains
a balance between what a patient's subcutaneous tissues are able to manage 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.
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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(R). We believe
market pressures have moved to consider alternatives to expensive electronic
systems especially for new subcutaneous administrations, which usually cannot be
done with gravity. For cost concerns, some patients have been trained to
administer intravenous drugs through IV push where the drug is pushed into the
vein directly from a syringe. This is a low-cost option but has been associated
with complications and considered by many to be a high-risk procedure. Thus, the
overall trend has been towards syringe pumps due to the low-cost of disposables.
IMPORTANCE OF INSURANCE REIMBURSEMENT TO FREEDOM60(R) SALES
In order to receive more favorable Medicare reimbursement for our FREEDOM60(R)
Syringe Infusion System, we had submitted a formal request for a HCPCS coding
verification with the Statistical Analysis Durable Medical Equipment Regional
Carrier (SADMERC). It was the determination of the Centers for Medicare &
Medicaid Services that the Medicare HCPCS code(s) to bill the four Durable
Medical Regional Carries (DMERCs) should be: E0779 Ambulatory infusion pump,
mechanical, reusable, for infusion 8 hours, or greater. The new code
significantly increases the reimbursement for the FREEDOM60(R) for billable
syringe pump applications approved by Medicare. Current approved uses under
Medicare include among others, subcutaneous immune globulin, antivirals,
antifungals, and chemotherapeutics. In June 2007, Medicare issued a letter of
clarification stating in part:
"The FREEDOM60(R) Syringe Infusion Pump is the only allowable pump to be billed
with the Subcutaneous Immune Globulin (SCIG). The code for this pump for dates
of service 1/1/00 - 5/16/07 is E0780. For dates of service on or after 5/17/07,
the correct code is E0779 per SADMERC. The items being billed must be supported
by corresponding documentation. All other pumps or modifiers will result in a
denial."
ECONOMIC BENEFITS OF FREEDOM60(R) PUMP AND DISPOSABLE SALES
We have shipped approximately 17,600 pumps since March 2000 including
approximately 4,300 pumps in the last year. Most of our current sales are made
directly to health care providers, although we maintain distributors in both the
domestic and foreign markets. The FREEDOM60(R) pump is designed for a minimum
use of 4,000 times which at our list price is amortized at $.13 per use.
We estimate that each FREEDOM60(R) pump, when used for immune globulin
administration, uses an average of four to six tubing sets per month per
patient. Antibiotics may be administered much more frequently, occasionally up
to four times per day. In some cases, a tubing set may be used for as long as 72
hours. We estimate tubing set usage for antibiotics to be as much as 10 sets per
month per patient. The tubing sets currently have an average price of $5.41.
The pump has a minimum expected life of 4,000 operations. Thus, if the pump is
operated up to four times per day as for some administrations of antibiotics,
anticipated pump life may be more than six and one-half years. For immune
globulin applications, an expected use of four to five times per month results
in an anticipated life span of decades for the FREEDOM60(R) pump.
Page 6
COMPETITION FOR THE FREEDOM60(R)
Competition for the FREEDOM60(R) 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(R). We believe the FREEDOM60(R) 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(R) or they may allow reimbursement for other infusion pumps
that are currently in the market or new ones that may enter shortly, which could
adversely affect our sales into this market.
NEW PRODUCT ENHANCEMENTS FOR THE FREEDOM60(R)
During January 2010, a new subcutaneous immune globulin called Hizentra(R) with
a greater concentration was approved by the FDA. We have performed significant
testing of the new drug with the FREEDOM60(R) and have been recognized by the
drug company for use with their drug. Based on initial reactions, the new
formulation appears to be an improved drug at higher concentrations, and is
expected to replace the previous offerings. We believe that Hizentra(R) will
continue to create additional opportunities for the FREEDOM60(R) system for our
fiscal year ending 2012. There are also other IgG drugs for subcutaneous route
of administration being introduced into the market, which may expand the market
for the FREEDOM60(R) and its accessories.
We have been developing our own needle administration sets for subcutaneous
immune globulin, which incorporate many enhanced features that we believe will
address many of the issues faced by current offerings. Due to the introduction
of Hizentra(R) with its increased viscosity, the new needle administration sets
were designed with improved flow characteristics. Our new needle set design has
very low fluid resistance creating the ability for rapid administrations with
improved safety. We have been approved for Europe and have begun shipping the
new needle sets to Europe during the last quarter. Initial feedback from our
distributors in the UK and Norwegian territory confirm the performance we
anticipated and have been well received. For the USA market, the FDA, on May 20,
2011, cleared our new subcutaneous needle sets for marketing.
There can be no assurance that we will be able to enter the domestic market
during the summer of YE 2012 as planned, that we will be able to deliver the new
needle set at a competitive price point, or that the set will be accepted by the
industry.
RES-Q-VAC(R) PORTABLE MEDICAL SUCTION
The RES-Q-VAC(R) Emergency Airway Suction System is a lightweight, portable,
hand-operated suction device that removes fluids from a patient's airway by
attaching the RES-Q-VAC(R) pump to various proprietary sterile and non-sterile
single-use catheters sized for adult and pediatric suctioning. The one-hand
operation makes it extremely effective and the product is generally found in
emergency vehicles, hospital crash carts and wherever portable aspiration is a
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necessity, including backup support for powered suction systems. The full stop
protection filter (FSP) and disposable features of the RES-Q-VAC(R) reduce the
risk of exposing the health professional to HIV or SARS when suctioning a
patient or during post treatment cleanup. All of the parts that connect to the
pump are disposable.
In 2009 we introduced new, updated features including the FSP filter, new
pediatric connectors, new graduated canister, new adult catheters, and new
convenient carry pouch. It is also available with a flexible, portable LED white
light source, which is attached to the top of the canister system and provides
illumination for the medical professional during nighttime or low light
conditions.
A critical component and advantage of the RES-Q-VAC(R) system is our Full Stop
Protection filter, a patented filtering system that both prevents leakage and
over-flow of the aspirated fluids, even at full capacity, and traps virtually
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 'Occupational Exposure to
Bloodborne Pathogens' CFR29 1910.1030. The Company has received a letter from
OSHA confirming that the RES-Q-VAC(R) 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.
Recent concerns are for diseases that are easily transmitted by small
aerosolized droplets such as Asian Bird Flu, Swine flu, and resistant
tuberculosis. Other concerns are hepatitis, HIV among others.
On April 29, 2003, the Centers for Disease Control (CDC) issued additional
guidelines for the control of SARS (Sudden Acute Respiratory Syndrome), which
requires all suction systems to have filtration equivalent to a HEPA filter to
prevent the spread of this disease. At the current time, we believe that the
RES-Q-VAC(R) with Full Stop Protection(R) is the only portable device to comply
with these CDC directives.
The new connectors added to our pediatric catheters allow them to connect
directly to the adult canisters, enabling pediatric suctioning with the benefit
of the Full Stop Protection(R) device as well as with sterile catheters. Many
infants are born with contagious diseases and the new system eliminates this
concern among paramedics during an emergency delivery.
One advantage of our RES-Q-VAC(R) airway suction system is versatility. With the
addition of Full Stop Protection(R), we created specific custom RES-Q-VAC(R)
kits for various vertical markets:
Emergency Medicine - we make several special kits for emergency use, which
contain all the catheters necessary to treat adults as well as infants or
children. These first responder kits are generally non-sterile. We also have
special attachments available for the advanced paramedic to treat patients who
are intubated.
Respiratory - in-home care, long-term care, situations requiring frequent
suctioning such as cystic fibrosis patients, patients with swallowing disorders,
elderly, patients on ventilators and with tracheostomies all benefit from the
portability, cost and performance of the RES-Q-VAC(R). In hospitals, the
RES-Q-VAC(R) provides emergency backup due to power loss or breakdown of the
wall suction system.
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Hospital Use - for crash carts, the emergency room, patients in isolation,
patient transport (e.g., from ICU to Radiology) and backup for respiratory,
RES-Q-VAC(R) is available sterile with Full Stop Protection(R) for the ultimate
in performance and to meet all the OSHA regulations and CDC guidelines for use
in treating patients in isolation, and in any location. Hospitals are required
under the EMTALA regulations to provide emergency treatment to patients anywhere
in the primary facility and up to 250 yards away. The RES-Q-VAC(R) ensures full
compliance with these regulations and helps minimize unfavorable outcomes and
potential lawsuits. We provide special hospital kits, which are fully stocked to
meet all hospital applications for both adult and pediatric.
Nursing homes, hospice, sub-acute - we provide special configurations for dining
areas, portable suctioning for outside events and travel. Chronic suction can be
accommodated with RES-Q-VAC(R), which can be left by the bedside for immediate
use during critical times.
Dental applications - we offer a version of the RES-Q-VAC(R), called
DENTAL-EVAC(R), which addresses the needs of oral surgeons for emergency backup
suction during a procedure. DENTAL-EVAC(R) is supplied with the dental suction
attachments such as saliva ejector and high volume evacuator.
Military Applications -Due to its lightweight, portability, and rapid
deployment, we believe that the RES-Q-VAC(R) is ideal for any military
situation. In addition, exposure to chemical weapons of mass destruction such as
Sarin is best treated by rapid, aggressive, and repeated suctioning. We believe
that the RES-Q-VAC(R)'s compact size, powerful pump, and full protection of the
user from any contamination, gives us a competitive edge in this market.
We are actively pursuing a direct sales effort into the hospital market and
continue our effort into nursing homes working with direct sales and several
regional distributors in the respiratory market. We also work with national
regional distributors who are well represented in the hospital respiratory
market.
RES-Q-VAC(R) DISTRIBUTION
RES-Q-VAC(R) primarily is sold domestically and internationally by emergency
medical device distributors. These distributors generally sell to the end user
and advertise these products in relevant publications and in their catalogs. We
have begun marketing the new hospital RES-Q-VAC(R) system with several regional
respiratory distributors with representation into the hospital market through
the respiratory departments.
OSHA AND CDC REQUIREMENTS
The Full Stop Protection(R) meets the requirement of the Occupational Safety and
Health Administration as described below. The Company has received a letter from
OSHA confirming that the RES-Q-VAC(R) with the Full Stop Protection(R) falls
under the engineering controls of the Bloodborne Pathogen regulation and that
the Products use would fulfill the regulatory requirements.
OSHA 29 CFR 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(R) for
RES-Q-VAC(R). The Company has received a letter from OSHA indicating the
RES-Q-VAC(R) meets the intent of this regulation.
Page 9
COMPETITION FOR THE RES-Q-VAC(R)
We believe that the RES-Q-VAC(R) is currently the performance leader for manual,
portable suction instruments. In the emergency market, the primary competition
is the V-Vac(TM) from Laerdal. The V-Vac(TM) is more difficult to use, cannot
suction infants, and cannot be used while wearing heavy gloves such as in
chemical warfare or in the extreme cold. Laerdal had more resources than
Repro-Med Systems and had begun marketing the V-Vac(TM) before RES-Q-VAC(R)
entered the market. Another competitor is Ambu, with the Res-Cue brand pump, a
product similar to our design, made in China. We believe that the product is not
as well made or as versatile, and may not be purchased by the military segment
of the market due to lines of supply concerns. We believe that the addition of
Full Stop Protection(R) substantially separates the RES-Q-VAC(R) from
competitive units, which tend to leak fluid when becoming full or could pass
airborne pathogens during use. There is a heightened concern from health care
professionals concerning exposure to disease and we believe the RES-Q-VAC(R)
provides improved protection for these users.
GYNECOLOGICAL INSTRUMENTS
We purchased the Gyneco product line in 1986. Products included the Masterson
Endometrial Biopsy Kit for in-office biopsy sampling procedures and the Thermal
Cautery System used for tubal ligation procedures.
Masterson Endometrial Biopsy Kit is a self-contained unit that offers a quick
and easy procedure for in-office tissue sampling. The powerful vacuum pump is
easily operated with one hand. The pump is supplied with sterile disposable
curettes and specimen containers presented in a kit.
The Thermal Cautery System is designed to provide a safe, reliable, and
effective method of female sterilization. The unit is small, compact, and
portable. A rechargeable battery supplies power. The unit uses disposable
components that include the cautery hook assembly, cannula and trocar stylette.
CONTRACT MANUFACTURING
Historically, we have used OEM profits partially to fund internal product
development that has resulted in new enhancements for RES-Q-VAC(R) and
FREEDOM60(R). Although several years ago the company received the majority of
its income from contract manufacturing, recent years have seen tremendous
increases in our proprietary products and a subsequent decrease in OEM
manufactured products for other companies. We still have customers for which we
manufacture products, but it represents less than 2% of revenues in the current
fiscal year ended February 2011.
We are also in various stages of development of other additional proprietary
medical devices. Thus, we have products currently on the market, new products in
development to be marketed and long-range products to support and enhance future
growth.
SALES AND DISTRIBUTION
FREEDOM60(R) systems are sold through both direct sales efforts concentrated on
large national accounts and a network of medical device distributors.
Gynecological instruments are sold from the corporate offices primarily through
repeat business. Distribution channels for the products are those generally
common to their respective markets. In recent years, our emergency medical
products are sold through a wide network of domestic and international
distributors in over 40 countries.
Page 10
The domestic emergency medical market has softened somewhat due to a decrease in
Federal reimbursement to the states and cities for firefighters, police, and
emergency services. We have concluded that we can have more effective market
penetration with major master distributors who are able to better support our
products.
For FREEDOM60(R), we have distributors in United Kingdom, Norway, Sweden,
Denmark, Iceland, Finland, Estonia, Latvia, and Lithuania. We believe that one
distributor in each country will be more predisposed to advertising, promotion,
and building the product franchise. In return, we will be able work more closely
with the distributors and be able to promote the products in each area.
We continue to support both of our main product lines at both National and
International trade shows. In November, we exhibited at Medica in Dusseldorf,
Germany; the world's largest medical products trade show. In March 2011, we
exhibited at the NHIA show in Orlando, Florida. In May of 2011, we plan to
attend the INS show in Louisville, Kentucky. We have also reserved our space for
the Medica trade show scheduled for November 2011.
The table below presents the product mix for the last two fiscal years.
FY2011 FY2010
PERCENTAGE OF SALES PERCENTAGE OF SALES
-------------------- --------------------
Infusion Therapy ................. 81.69% 75.63%
Medical Suction .................. 16.61% 21.86%
Gynecological Instruments ........ 0.72% 1.14%
Contract Manufacturing ........... 0.98% 1.33%
Other ............................ 0.00% 0.04%
MANUFACTURING AND EMPLOYEES
The Company's employees perform at the Company's facility electromechanical
assembly, calibration, pre- and post-assembly quality control inspection and
testing, and final packaging for all products. Products are assembled using
molded plastic parts acquired from several U.S. vendors and one supplier located
in Taipei, Taiwan. The availability of parts has not been a problem. The cost
and time required to fabricate molds to manufacture parts can slow the
development of new products and might temporarily limit supply if we determine
it is advisable to seek alternate sources of supply for existing products. Our
policy has been to have multiple vendors as suppliers, where practicable, that
also offer mold-building capabilities as a service.
As of February 28, 2011 we employed 44 employees, 32 were assigned to
manufacturing operations, 2 to sales and customer support, 8 to administrative
functions, 1 to quality assurance functions and 1 Executive Officer. The Company
is dependent on the services of Andrew Sealfon who serves as President, head of
Research and Development and is instrumental in sales, marketing, and finance.
The Company does not have insurance on the life of Andrew Sealfon and may not be
able to replace him if the need arose.
REGULATIONS GOVERNING THE MANUFACTURING OPERATIONS
The Food, Drug, and Cosmetic Act governs the development and manufacturing of
all medical products. The Act requires us to register the facility, list
devices, file notice of intent to market new products, track the locations of
certain products and to report any incidents of death or serious injury relating
to the products with the FDA. We are subject to civil and criminal penalties
and/or recall seizure or injunctions if we fail to comply with regulations of
the FDA.
Page 11
We are required to comply with federal, state, and local environmental laws;
however, there is no significant effect of compliance on capital expenditures,
earnings, or competitive position. We do not use significant amounts of
hazardous materials in the assembly of these products.
Periodically we are subject to inspections and audits by FDA inspectors. The
last quality review by the FDA was in September 2010, which included, among
others, a review of complaints, quality controls, and documentation. The primary
complaints for the FREEDOM60(R) relate to a lack of training on the part of the
patient and medical support staff. The FDA inspection did not find any
violations and no DD483 was issued. The Company always is subject to further
audits by the FDA and could be impacted by adverse findings.
PATENTS AND TRADEMARKS
We have filed and received U.S. protection for many of our products and in some
cases, where it was no longer deemed economically beneficial; we have allowed
certain patent protections to lapse. The RES-Q-VAC(R) is susceptible in the
international market to imitation. In 2002, a competitor had introduced a
competitive product to the RES-Q-VAC(R) into the market. We responded with the
introduction of new innovative features for the RES-Q-VAC(R) that enhanced the
product and placed well above the competition in safety.
On June 10, 2003, we received a patent #6,575,946 for our new Full Stop
Protection(R). This addition to the RES-Q-VAC(R) system prevents any fluids from
exiting the system. It also serves to trap airborne and fluid pathogens. We
believe that the addition of the flow block design substantially separates the
RES-Q-VAC(R) from competitive units, which tend to leak fluid when becoming full
or could pass airborne pathogens during use. There is a heightened concern from
health care professionals concerning exposure to disease, and the filtered
RES-Q-VAC(R) provides improved protection for these users.
We also hold patent #5,336,189 for a "Combination IV Pump & Disposable Syringe"
which confers a unique syringe to IV pump interface design. This patent is for
the FREEDOM60(R) Infusion System, an infusion therapy product. The cost of
filing and maintaining applications has deterred pursuing international patents.
The patent position of small companies is highly uncertain and involves complex
legal and factual questions. Consequently, there can be no assurance that patent
applications relating to products or technology will result in patents being
granted or that, if issued, the patents will afford protection against
competitors with similar technology. Furthermore, some patent licenses held may
be terminated upon the occurrence of certain events or become non-exclusive
after a specified period. There can be no assurance that we will have the
financial resources necessary to enforce any patent rights we may hold.
Our product names are registered trademarks. There can be no assurance that
patents or trademarks will provide competitive advantages for the products
covered or that they will not be challenged or circumvented by competitors.
ITEM 1A. RISK FACTORS
Not applicable as the Company is a smaller reporting Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable as the Company is a smaller reporting Company.
Page 12
ITEM 2. PROPERTY
We currently rent a masonry and steel frame building erected on 3.27 acres of
land located at 24 Carpenter Road, Chester, New York 10918. This facility is our
only location and is used as our headquarters and manufacturing operations.
Currently we are in year 12 of a 20-year lease and are responsible for all
repairs, maintenance, and upkeep of the space occupied. The terms of the lease
call for monthly lease payments of $11,042, and we contribute payments of 65% of
the building's annual property taxes, amounting to $47,434 for the year ended
February 28, 2011.
ITEM 3. LEGAL PROCEEDINGS
We are, from time to time, subject to claims and suits arising in the ordinary
course of business, including claims for damages for personal injuries, breach
of management contracts, and employment related claims.
ITEM 4. REMOVED AND RESERVED
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
We are authorized to issue 50,000,000 shares of Common Stock, $.01 par value. As
of February 28, 2011, 36,577,667 shares were issued and outstanding and there
were approximately 1,066 holders of record.
Our Common Stock is traded in the over-the-counter market and is quoted through
the National Daily Quotation Service. The following table sets forth the high
and low closing bid quotations for the Common Stock as reported by Commodity
Systems, Inc. for the periods indicated. These quotations do not include retail
mark-up, markdown, or commission and may not represent actual transactions.
HIGH LOW
---- ---
2011 QUARTER ENDED
February 28, 2011, ... $0.19 $0.06
November 30, 2010 .... $0.21 $0.09
August 31, 2010 ...... $0.16 $0.07
May 31, 2010 ......... $0.18 $0.11
2010 QUARTER ENDED
February 28, 2010 .... $0.23 $0.11
November 30, 2009 .... $0.30 $0.14
August 31, 2009 ...... $0.20 $0.12
May 31, 2009 ......... $0.19 $0.08
On February 2, 1993, we issued 10,000 shares of 8% Cumulative Convertible
Preferred Stock in a private placement for $100,000. In June 2010, the 10,000
preferred shares were converted into 952,381 shares of common stock. The
shareholder waived accrued preferred dividends, and the amount was reversed
through the accumulated deficit.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable as the Company is a smaller reporting company.
Page 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report on Form 10-K contains certain "forward-looking" statements
(as such, term is defined in the Private Securities Litigation Reform Act of
1995) and information relating to us that are based on the beliefs of the
management, as well as assumptions made by and information currently available.
Our actual results may vary materially from the forward-looking statements made
in this report due to important factors such as, recent operating losses,
uncertainties associated with future operating results, unpredictability related
to Food and Drug Administration regulations, introduction of competitive
products, limited liquidity, reimbursement related risks, government regulation
of the home health care industry, success of the research and development
effort, expanding the market of FREEDOM60(R), availability of sufficient capital
to continue operations and dependence on key personnel. When used in this
report, the words "estimate," "project," "believe," "anticipate," "intend,"
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements reflect current views with respect to future events
based on currently available information and are subject to risks and
uncertainties that could cause actual results to differ materially from those
contemplated in such forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. These statements involve risks and uncertainties with respect
to the ability to raise capital to develop and market new products, acceptance
in the market place of new and existing products, ability to penetrate new
markets, our success in enforcing and obtaining patents, obtaining required
Government approvals and attracting and maintaining key personnel that could
cause the actual results to differ materially. Repro-Med does not undertake any
obligation to release publicly any revision to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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 of raw materials are stated at the lower of average cost or market
value including allocable overhead. Work-in-process and finished goods are
stated at the lower of average cost or market value and include direct labor and
allocable overhead. Average cost is calculated using a rolling average based
upon new purchases and quantities.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Important estimates include but are not limited to, asset lives,
valuation allowances, inventory, and accruals.
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 14
REVENUE RECOGNITION
Sales of manufactured products are recorded when shipment occurs and title
passes to a customer, persuasive evidence of an arrangement exists with the
customer, the sales price is fixed and determinable and the 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.
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.
RESULTS OF OPERATIONS
2011 vs. 2010
Overall sales for the year ending February 2011 increased 30.4% to $4,920,723
from $3,774,873 for the same period last year.
We continue to focus our sales and marketing efforts mainly on our two core
product lines, the FREEDOM60(R) Syringe Infusion System and the RES Q VAC(R)
Medical Suction System.
The FREEDOM60(R) continues to lead our sales increases with an overall
improvement of 44.2% going from $2,805,548 in 2010 to $4,044,313 for the current
year. The increase is due to additional sales for use with immune globulin,
antibiotics, and to a lesser extent, new international sales coming in
approximately midyear. We have concentrated the majority of our efforts in the
FREEDOM60(R) line, specifically towards the subcutaneous immune globulin (SCIG)
market.
We anticipate these sales to continue to increase as the SCIG market continues
to develop and as we work on new enhancements to the FREEDOM60(R) that we
believe will expand this market even further. In addition, we expect many of the
SCIG providers will see benefit in using the FREEDOM60(R) system for other uses,
such as antibiotics, chemotherapeutics, and pain medications.
Our Net income for the year ending February 28, 2011 was $704,085 as compared to
Net income of $889,444 for the previous year. This was primarily due to a
decrease in the income tax benefit from $226,984 in 2010 to tax expense of
$489,034 in 2011. This was due to management's evaluation of the Deferred Tax
Asset (DTA) in 2010 thereby reducing the valuation allowance in 2010 to zero.
Tax expense in 2011 consists solely of the applicable tax on current income.
We recorded deferred tax assets of $45,641 and $532,984 as of February 28, 2011
and 2010, respectively. The deferred tax assets have been offset by valuation
allowances of $0 as of both February 28, 2011 and 2010. Management based this on
the prospect of future profitability. The amount of $45,641 we recognized as of
February 28, 2011 represents the full amount of tax benefits available.
Page 15
RES-Q-VAC(R) sales decreased by 0.4% to $868,524 from $871,814. We made
arrangements with a new group of distributors to introduce the RES-Q-VAC(R) to
the hospital markets, and further our efforts to promote emergency medical
sales.
Combined sales of our non-core product lines (Gyneco and contract manufacturing)
decreased by 3.6% or $1,826.
Cost of goods sold increased from $1,263,406 for year ended February 28, 2010 to
$1,657,184 for the current year primarily because of increased sales. Gross
profit margin for the year ended February 28, 2011 is essentially unchanged at
66.3%, as compared with 66.5% for the previous year. Raw materials costs have
been increasing, which we have been able to offset through price increases.
Selling, General & Administrative Expenses (SG&A) increased by $270,194 year
over year from $1,697,223 to $1,967,417 due to additional marketing expenses
associated with our increase in sales and general increases in payroll. Stock
based compensation decreased this year to $12,511 from $19,312 in the year ended
2010.
Research and development expenses increased from $27,921 to $35,519 primarily
due to increased labor costs.
Depreciation and amortization expense increased by 1.5% to $65,774 during the
year ended February 28, 2011 as compared to $64,804 for the previous year 2010.
Interest expense decreased from $47,504 to $36,392 due to loan consolidations,
lower interest rates, and elimination of higher interest debts.
LIQUIDITY AND CAPITAL RESOURCES
Our net operating profit for the year ended February 28, 2011 was $1,194,829 as
compared with $721,519 for the previous year. For the year ended February 28,
2011 Net Cash provided from Operations was $1,028,465 as compared with $382,298
for the prior year. This change of $646,167 was due primarily to the increase in
pre-tax income from operations.
Accounts Receivable, net of reserves, increased at February 28, 2011 to $713,906
as compared to $654,960 for the previous year because of our increased sales.
Domestic sales are made primarily on net 30-day payment terms. A variety of
terms continue to be employed for export sales including cash prepayments and
net 45 days to allow for increased delays due to transportation and
communications. As of February 28, 2011, 88% of Accounts Receivable were current
or less than 30 days past due, 4% were at 30-60 days and 8% were over 61 days.
Prepaid expenses and other receivables increased to $112,937 from $67,611 due to
a foreign vendor that requires payment before items are received.
Expenditures for capital equipment in 2011 were $200,522 and patent costs were
$450 on filings for new products that initiated during the year.
We currently lease a masonry and steel frame building erected on 3.27 acres of
land located at 24 Carpenter Road, Chester, New York 10918. This facility is our
only location and is used as our headquarters and manufacturing operations.
Currently, we are in year 12 of a 20-year lease and are responsible for all
repairs, maintenance, and upkeep of the space occupied. The terms of the lease
call for a monthly lease payment of $11,042 per month. We also contribute
payments of 65% of the building's annual property taxes, amounting to $47,434
for the year ended February 28, 2011.
Page 16
In the last quarter, we began to sell our new RMS Subcutaneous Needle
Administration Sets in Europe. We received approval from the FDA on May 20,
2011, for domestic marketing. Therefore, we now have approval for Europe,
Canada, and the United States. We believe that the RMS Needle sets represent an
improvement in performance and safety over the current devices on the market and
that we will experience an increase in sales once we begin marketing the new
needle sets domestically. We believe we have sufficient resources to initiate
domestic marketing of the needle sets, and we are planning significant
manufacturing expansion to launch the new needle sets in the domestic market. We
currently are negotiating with a third party manufacturer to arrange for outside
production for additional capacity and to establish an alternative source of
supply for our customers. However, there can be no assurance that the domestic
market will recognize the benefits of our new needle sets and change from
existing products to our system in any appreciable percentage of market share.
We believe the FREEDOM60(R) continues to find a solid following in the
subcutaneous immune globulin market and this market is expected to continue to
increase both domestically and internationally. We continue to experience an
increase in sales, cash flow during the year ended February 28, 2011 and with
these increases and the capital we currently have, we will continue to meet or
exceed the company's liquidity needs for the next twelve months.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable as the Company is a smaller reporting Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page 17
Francis J. Merkel, CPA
Joseph J. Quinn, CPA, CVA
Daniel J. Gerrity, CPA
Mary Ann E. Novak, CPA
MMQ
McGrail Merkel Quinn & Associates, P.C.
CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS
To the Board of Directors and Stockholders
Repro-Med Systems, Inc.
Chester, New York
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
We have audited the accompanying balance sheets of Repro-Med Systems,
Inc. as of February 28, 2011 and 2010, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Repro-Med Systems,
Inc. as of February 28, 2011 and 2010, and the results of its operations and its
cash flows for the years then ended in conformity with U.S. generally accepted
accounting principles.
/s/ McGrail Merkel Quinn
& Associates, P.C.
Scranton, Pennsylvania
May 27, 2011
Page 18
REPRO-MED SYSTEMS, INC.
BALANCE SHEETS
FEBRUARY 28, FEBRUARY 28,
2011 2010
------------ ------------
ASSETS
CURRENT ASSETS:
Cash ............................................. $ 1,322,250 $ 813,383
Certificates of Deposit .......................... 152,399 --
Accounts receivable less allowance for doubtful
accounts of $12,128 and $30,823 for February 28,
2011 and February 28, 2010 respectively ......... 713,906 654,960
Inventory ........................................ 668,200 634,584
Prepaid expenses ................................. 112,937 67,611
Deferred Tax Asset ............................... 45,641 308,250
----------- -----------
Total Current Assets ............................... 3,015,333 2,478,788
----------- -----------
PROPERTY & EQUIPMENT, less accumulated depreciation
of $1,316,822 and $1,256,617 at February 28, 2011
and February 28, 2010 respectively ................ 361,360 221,043
----------- -----------
OTHER ASSETS:
Patents, net of accumulated amortization of
$102,314 and $96,745 at February 28, 2011 and
February 28, 2010, respectively ................. 29,839 34,958
Security deposit ................................. 28,156 28,156
Deferred Tax Asset ............................... -- 224,734
----------- -----------
Total Other Assets ................................. 57,995 287,848
----------- -----------
TOTAL ASSETS ....................................... $ 3,434,688 $ 2,987,679
=========== ===========
The accompanying notes are an integral part of these Financial Statements.
Page 19
REPRO-MED SYSTEMS, INC.
BALANCE SHEETS
FEBRUARY 28, FEBRUARY 28,
2011 2010
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - current portion ................... $ 1,928 $ 29,483
Notes payable to related parties - current portion 39,011 36,744
Deferred capital gain - current portion .......... 22,481 22,481
Accounts payable ................................. 158,108 80,717
Accrued expenses ................................. 71,330 118,740
Accrued interest ................................. -- 54,183
Accrued preferred stock dividends ................ -- 68,000
Accrued payroll and related taxes ................ 21,195 12,655
Warranty liability ............................... -- 72,188
----------- -----------
Total Current Liabilities .......................... 314,053 495,191
----------- -----------
OTHER LIABILITIES
Note payable - less current portion .............. 3,552 5,480
Notes payable to related parties - less current
portion ......................................... 479,248 618,259
Deferred capital gain less current portion ....... 157,375 179,855
----------- -----------
Total Other Liabilities ............................ 640,175 803,594
----------- -----------
Total Liabilities .................................. 954,228 1,298,785
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, 8% cumulative, liquidation value
$100,000, $0.01 par value, 2,000,000 shares
authorized, 10,000 shares issued and outstanding
at February 28, 2010 ............................ -- 100
Common Stock, $0.01 par value, 50,000,000 shares
authorized, 36,577,667 and 35,584,286 issued and
outstanding at February 28, 2011 and February 28,
2010 respectively ............................... 365,777 355,843
Additional paid-in Capital ....................... 3,017,809 3,008,162
Accumulated deficit .............................. (761,126) (1,533,211)
----------- -----------
2,622,460 1,830,894
Less: Treasury Stock, 2,275,000 shares at cost at
February 28, 2011 and February 28, 2010 ......... (142,000) (142,000)
----------- -----------
Total Stockholders' Equity ......................... 2,480,460 1,688,894
----------- -----------
Total Liabilities and Stockholders' Equity ......... $ 3,434,688 $ 2,987,679
=========== ===========
The accompanying notes are an integral part of these Financial Statements.
Page 20
REPRO-MED SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
2011 2010
------------ ------------
NET SALES ........................................ $ 4,920,723 $ 3,774,873
------------ ------------
Cost and Expenses
Cost of goods Sold ............................. 1,657,184 1,263,406
Selling, general and administrative ............ 1,967,417 1,697,223
Research and development ....................... 35,519 27,921
Depreciation and amortization .................. 65,774 64,804
------------ ------------
Total Costs and Expenses ......................... 3,725,894 3,053,354
------------ ------------
Net Operating Profit ............................. 1,194,829 721,519
------------ ------------
Other Income/(Expenses)
Interest Expense ............................... (36,392) (47,504)
Forgiveness of Interest ........................ 28,425 --
Loss on Foreign Currency Exchange .............. (2,461) (4,295)
Loss on impairment of Goodwill ................. -- (8,609)
Interest and Other Income ...................... 8,718 1,349
------------ ------------
Total Other Income/(Expense) ..................... (1,710) (59,059)
------------ ------------
INCOME BEFORE TAXES .............................. 1,193,119 662,460
Income Tax (Expense) Benefit ................... (489,034) 226,984
------------ ------------
NET INCOME ..................................... 704,085 889,444
Preferred stock dividends ........................ -- 8,000
------------ ------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS ...... $ 704,085 $ 881,444
============ ============
NET INCOME PER COMMON SHARE AVAILABLE TO COMMON
STOCKHOLDER ..................................... $ 0.02 $ 0.02
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ....... 36,244,542 35,377,437
============ ============
The accompanying notes are an integral part of these financial statements.
Page 21
REPRO-MED SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS'EQUITY
FOR THE YEARS ENDED FEBRUARY 28, 2011 AND FEBRUARY 28 2010
PREFERRED STOCK COMMON STOCK
---------------- -------------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
-------- ------ ---------- -------- ---------- ------------ --------- ----------
BALANCE, FEBRUARY 29, 2009 10,000 $ 100 34,829,286 $348,293 $2,913,350 $ (2,414,655) $(142,000) $ 705,088
Preferred stock dividends ... -- -- -- -- -- (8,000) -- (8,000)
Fair value of stock options
issued and exercisable ...... -- -- -- -- 19,312 -- -- 19,312
Issuance of common stock in
accordance with director loan
agreement at $0.11 per share -- -- 755,000 7,550 75,500 -- -- 83,050
Net income for year ended
February 28, 2010 ........... -- -- -- -- -- 889,444 -- 889,444
-------- ------ ---------- -------- ---------- ------------ --------- ----------
BALANCE, FEBRUARY 28, 2010 10,000 100 35,584,286 355,843 3,008,162 (1,533,211) (142,000) 1,688,894
Reversal of accrued preferred
stock dividends ............. -- -- -- -- -- 68,000 -- 68,000
Fair value of stock options
issued and exercisable ...... -- -- -- -- 12,511 -- -- 12,511
Conversion of preferred stock
into common stock by director
per agreement at $0.105 per
share ....................... (10,000 (100) 952,381 9,524 (9,424) -- -- --
Issuance of common stock as
employee incentives at $0.17
per share ................... -- -- 6,000 60 960 -- -- 1,020
Issuance of common stock as
incentive for property owner
maintenance at $0.17 per
share ....................... -- -- 35,000 350 5,600 -- -- 5,950
Net income for the year ended
February 28, 2011, .......... -- -- -- -- -- 704,085 -- 704,085
-------- ------ ---------- -------- ---------- ------------ --------- ----------
BALANCE, FEBRUARY 28, 2011 -- $ -- 36,577,667 $365,777 $3,017,809 $ (761,126) $(142,000) $2,480,460
The accompanying notes are an integral part of these Financial Statements.
Page 22
REPRO-MED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
---------------------------
FEBRUARY 28, FEBRUARY 28,
2011 2010
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ..................................... $ 704,085 $ 889,444
Adjustments to reconcile net income to net cash
from operating activities:
Stock based Compensation ..................... 12,511 19,312
Stock based Incentives ....................... 6,970 --
Depreciation and Amortization ................ 65,774 64,804
Deferred Capital Gain - Building Lease ....... (22,480) (22,480)
Loss from Impairment of Goodwill ............. -- 8,609
Decrease ( increase) in Deferred Tax Asset ... 487,343 (226,984)
Changes in Operating Assets and Liabilities:
(Increase) in Accounts Receivable ............ (58,946) (166,218)
Increase in Inventory ........................ (33,616) (12,735)
(Increase) decrease in Prepaid Expense ....... (45,326) 5,586
Increase (decrease) in Accounts Payable ...... 77,391 (138,760)
Increase (decrease) in Accrued Payroll and
Related Taxes ............................... 8,540 (1,128)
Decrease in Accrued Expense .................. (47,410) (23,801)
Decrease in Customer Deposits ................ -- (92)
Decrease in Warranty Liability ............... (72,188) (21,259)
(Decrease) increase in Accrued Interest ...... (54,183) 8,000
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........ 1,028,465 382,298
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for Property and Equipment ............ (200,522) (51,989)
Payments for Patents ........................... (450) (4,169)
Purchase of Certificates of Deposit ............ (152,399) --
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ............ (353,371) (56,158)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Note Payable ..................... -- 7,697
Payments to Note Payable to Related Parties .... (136,744) (34,610)
Payments on Notes Payable ...................... (29,483) (5,053)
------------ ------------
NET CASH USED BY FINANCING ACTIVITIES ............ (166,227) (31,966)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........ 508,867 294,174
CASH BEGINNING OF YEAR ........................... 813,383 519,209
------------ ------------
CASH END OF YEAR ................................. $ 1,322,250 $ 813,383
============ ============
Supplemental Information
Cash paid during the year for:
Interest ....................................... $ 36,392 $ 39,504
NON-CASH ACTIVITIES
Issuance of Common Stock to Reduce Related Party
Loan .......................................... $ -- $ 83,050
Issuance of Common Stock as Incentives ......... $ 6,970 $ --
Conversion of Preferred Stock to Common Stock .. $ 100,000 $ --
The accompanying notes are an integral part of these Financial Statements.
Page 23
REPRO-MED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2011 AND FEBRUARY 28, 2010
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Repro-Med Systems, Inc. (the "Company") was incorporated on March 24,
1980 under the laws of the State of New York. The Company was organized
to engage in research, development, laboratory and clinical testing,
production and marketing of medical devices used in the treatment of
the human condition.
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.
CERTIFICATES OF DEPOSIT
The certificate of deposit is recorded at cost plus accrued interest.
The certificate of deposit earns interest at a rate of 0.9% and matures
in February 2012. Interest income is recorded in the statements of
operations as it is earned and was $2,399 for the year ended February
28, 2011.
INVENTORY
Inventories of raw materials are stated at the lower of average cost or
market value including allocable overhead. Work-in-process and finished
goods are stated at the lower of average cost or market value and
include direct labor and allocable overhead. 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.
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 $45,641 and
$532,984 as of February 28, 2011 and February 28, 2010, respectively.
The deferred tax assets have been offset by valuation allowances of $0
at both of February 28, 2011 and 2010. Management based the valuation
allowance calculations on the prospect of future profitability. The
amount recognized at February 28, 2011 namely $45,641, represents the
full amount of tax benefits available.
Page 24
Provisions for income taxes are based on taxes payable or refundable
for the current year as well as deferred taxes on temporary
differences, between the amount of taxable income and pre-tax financial
income and between the tax bases of assets and their reported amounts
in the Financial Statements. Deferred tax assets are included in the
Financial Statements at currently enacted income tax rates applicable
to the period in which the deferred tax assets are expected to be
realized or settled. As changes in tax, laws or rates are enacted,
deferred tax assets are adjusted through the provision for income
taxes.
Management evaluated the Company's tax positions and concluded that the
Company had taken no uncertain tax positions that require adjustment to
the financial statements. With few exceptions, the Company is no longer
subject to income tax examinations by the U.S. Federal, state or local
tax authorities for years before 2008.
PROPERTY, 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 are computed on the weighted average of common
shares outstanding during each year. For the year ended February 28,
2010, diluted earnings per share includes an increase to income for the
preferred stock dividends, an increase in the weighted average shares
by the common shares issuable upon exercise of employee and director
stock options (Note 7) and convertible preferred stock shares. During
the year ended February 28, 2011 the preferred shares were converted
into common shares and therefore diluted earnings per share includes
only an increase in the weighted average shares by the common shares
issuable upon exercise of employee and director stock options (Note 7).
See the calculations in the following table:
INCOME SHARES PRE-SHARE
FEBRUARY 28, 2011 (NUMERATOR) (DENOMINATOR) AMOUNT
----------------- ----------- ------------- ---------
Basic Net Income Per Common Share
Income available ................ $ 704,085 36,244,542 $ 0.02
Options includable .............. -- 606,218 --
----------- ------------- ---------
Diluted Net Income Per Common Share $ 704,085 36,850,760 $ 0.02
----------- ------------- ---------
INCOME SHARES PRE-SHARE
FEBRUARY 28, 2010 (NUMERATOR) (DENOMINATOR) AMOUNT
----------------- ----------- ------------- ---------
Basic Net Income Per Common Share
Income available ................ $ 881,444 35,377,437 $ 0.02
Preferred stock dividends ....... 8,000 -- --
Options includable .............. -- 2,817,756 --
Convertible preferred stock ..... -- 185,185 --
----------- ------------- ---------
Diluted Net Income Per Common Share $ 889,444 38,380,378 $ 0.02
----------- ------------- ---------
Page 25
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.
SUBSEQUENT EVENTS
The Company has evaluated subsequent events through May 27, 2011, the
date on which the financial statements were issued.
On May 20, 2011, the FDA cleared our new subcutaneous needle sets for
marketing in the United States.
REVENUE RECOGNITION
Sales of manufactured products are recorded when shipment occurs and
title passes to a customer, persuasive evidence of an arrangement
exists with the customer, the sales price is fixed and determinable and
the 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 generally are 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.
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.
EMERGING ACCOUNTING STANDARDS
In October 2009, the FASB issued ASU 2009-13, Revenue Recognition
(Topic 605): Multiple-Deliverable Revenue Arrangements - a consensus of
the FASB Emerging Issues Task Force. ASU 2009-13 establishes new
guidance that is related to revenue recognition in situations with
multiple-element arrangements. The new guidance requires companies to
allocate revenue in multiple-element arrangements based on an element's
estimated selling price if vendor-specific or other third-party
evidence of value is not available. The accounting guidance will be
applied prospectively and will become effective for the Company on
March 1, 2011. The guidance is not expected to have a significant
impact on the Company's financial statements.
Page 26
In December 2009, the FASB issued ASU 2009-16, Transfers, and Servicing
(Topic 860): Accounting for Transfers of Financial Assets. ASU 2009-16
amended prior guidance to enhance reporting about transfers of
financial assets, including securitizations, and where companies have
continuing exposure to the risks related to transferred financial
assets. Among other provisions, ASU 2009-16 eliminated the concept of a
"qualifying special-purpose entity" (QSPE) from SFAS No.140 and removed
the exception from applying FIN 46(R), Consolidation of Variable
Interest Entities, to QSPEs. ASU 2009-16 also changed the requirements
for derecognizing financial assets and required additional disclosures
about all continuing involvements with transferred financial assets
including information about gains and losses resulting from transfers
during the period. The provisions of ASU 2009-16 became effective on
March 1, 2010 and did not have a significant impact on the Company's
financial statements.
In January 2010, the FASB issued ASU 2010-06 Fair Value Measurements
and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. ASU 2010-06 requires new fair value measurement
disclosures about transfers in and out of Levels 1 and 2, and activity
in Level 3 fair value measurements (purchases, sales, issuances, and
settlements on a gross basis). ASU 2010-06 also clarified existing
disclosures about the level of disaggregation and about inputs and
valuation techniques. The new disclosures and clarifications of
existing disclosures were effective for the Company March 1, 2010,
except for the disclosures about purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value
measurements. Those disclosures are effective for the Company March 1,
2011. As this guidance provides only disclosure requirements, the
adoption of this standard will not affect the Company's financial
position, results of operation and cash flows.
In December 2010, the FASB issued ASU 2010-28, Intangibles - Goodwill
and Other (Topic 350): When to Perform Step 2 of the Goodwill
Impairment Test for Reporting Units with Zero or Negative Carrying
Amounts. ASU 2010-28 modifies Step 1 of the goodwill impairment test
for reporting units with zero or negative carrying amounts. For those
reporting units, an entity is required to perform Step 2 of the
goodwill impairment test if it is more likely than not that a goodwill
impairment exists. The provisions of ASU 2010-28 are effective for the
Company's reporting period ending May 27, 2011. As of February 28,
2011, the Company had no operating units with zero or negative carrying
amounts or reporting units where there was a reasonable possibility of
failing Step 1 of the goodwill impairment test. As a result, the
adoption of ASU 2010-28 is not expected to have a material impact on
the Company's financial position, results of operation and cash flows.
In December 2010, the FASB issued ASU 2010-29, Business Combinations
(Topic 805): Disclosures of Supplementary Pro Forma Information for
Business Combinations. ASU 2010-29 provides clarification regarding the
acquisition date that should be used for reporting the pro forma
financial information disclosures required by Topic 805 when
comparative financial statements are presented. ASU 2010-29 also
requires entities to provide a description of the nature and amount of
material, nonrecurring pro forma adjustments that are directly
attributable to the business combination. ASU 2010-29 is effective for
the Company prospectively for business combinations occurring after
February 28, 2011.
Page 27
NOTE 2 INVENTORY
Inventory consists of:
FEBRUARY 28, 2011 FEBRUARY 28, 2010
----------------- -----------------
Raw materials ............ $ 443,077 $ 451,444
Work in progress ......... 50,902 18,572
Finished goods ........... 174,221 164,568
----------------- -----------------
$ 668,200 $ 634,584
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
FEBRUARY 28, FEBRUARY 28, ESTIMATED
2011 2010 USEFUL LIVES
------------ ------------ ------------
Furniture and office equipment ....... $ 553,093 $ 489,679 5 years
Manufacturing equipment and tooling .. 1,125,089 987,981 7-12 years
------------ ------------
1,678,182 1,477,660
Less: accumulated depreciation ....... 1,316,822 1,256,617
------------ ------------
Property and Equipment, Net .......... $ 361,360 $ 221,043
Depreciation expense was $60,205 and $59,258 for the years ended February 28,
2011 and February 28, 2010, respectively.
NOTE 4 RELATED PARTY TRANSACTIONS
NOTE PAYABLE TO RELATED PARTIES
The President of the Company previously advanced the Company $100,000
under a demand loan, which bears interest at the rate of 8% (see Note 5
- Long-term debt). The Board of Directors approved this note. In June
2010, the Company repaid the $100,000 debt to the president, including
half of the associated accrued interest. The other half of the accrued
interest was forgiven by the Company president and recorded in income
as an interest rate adjustment due to the steady decline in rates over
the past few years.
LEASED AIRCRAFT
The Company leases an aircraft from a Company controlled by the
President. The lease payments aggregated $21,500 for the years ended
February 28, 2011 and 2010. The original lease agreement has expired
and the Company is currently on a month-to-month basis for rental
payments.
BUILDING LEASE
In February 2011, the Company elected Mr. Mark Pastreich as a Director.
Mr. Pastreich is a principal in the company that owns the building
leased by Repro-Med Systems, Inc. The Company is in year twelve of a
twenty-year lease. There have been no changes to lease terms since his
directorship and none are expected through the life of the current
lease.
Page 28
NOTE 5 LONG-TERM DEBT
Long-term debt consists of the following at:
FEBRUARY 28, FEBRUARY 28,
2011 2010
------------ ------------
The President of the Company loaned the Company,
$100,000 at 8% interest. The loan was unsecured and
was set to mature March 31, 2011. The loan was
fully paid off in June 2010 ....................... -- 100,000
In January 2008, the Company entered into an
installment loan arrangement to purchase a vehicle
The loan bears interest at the rate of 6.735% and
was payable in 84 monthly installments of $552. The
loan was secured by the vehicle. The balance of
this loan was paid in full in April 2010 .......... -- 27,693
In February 2009, the Company was granted a loan
from a director of the Company for $672,663,
payable in monthly installments of $5,754 at a rate
of 6.00% interest. The Company issued the Director
755,000 shares of common stock at the price of
$0.11 per share in June 2009 further to reduce the
debt. The loan will mature in February 2021 ....... 518,259 555,003
In October 2009, the Company entered into an
equipment loan with Key Equipment Finance to
purchase equipment. The loan bears interest at a
rate of 7.50% and is payable in 48 monthly
installments of $189 .............................. 5,480 7,270
------------ ------------
523,739 689,966
Less current portion ............................... 40,939 66,227
------------ ------------
Long-term portion .................................. $ 482,800 $ 623,739
Aggregate maturities as required on long-term debt at February 28, 2011
are:
2012 ........ $ 40,939
2013 ........ 43,494
2014 ........ 45,445
2015 ........ 46,683
2016 ........ 49,562
Thereafter .. 297,616
---------
Total ....... $ 523,739
Page 29
NOTE 6 STOCKHOLDERS' EQUITY
On June 8, 2009, the Company issued 755,000 shares of its common stock
at $0.11 per share in accordance with a related party loan agreement
with a director of the Company. The charge was a reduction of the note
payable to the related party.
On June 21, 2010, the preferred stock owner of the Company elected to
convert the 10,000 shares of preferred stock for 952,381 shares of
common stock at a conversion rate of $0.105 per share. The shareholder,
also a director of the Company, waived the payment of $68,000 of
accrued preferred dividends. These dividends were reversed through the
accumulated deficit account, the same way in which they were originally
accrued.
On February 28, 2011, the Company issued 6,000 shares of stock at $0.17
per share to three employees for compensation incentives.
On February 28, 2011, the Company issues 35,000 shares of stock at
$0.17 per share to the property owner as incentive for building
maintenance.
NOTE 7 STOCK OPTIONS
On June 6, 2007, the Board of Directors approved the issuance of
4,360,000 stock options to key employees and directors of the Company.
The options have an expiration date of 5 years from the date of grant
and an exercise price of $0.06 per share. Of the 4,360,000 stock
options granted, 1,690,000 vested immediately and 890,000 stock options
vest each succeeding year for three consecutive years.
The fair value of each option grant was calculated to be $.0272 on the
date of grant using the Black-Schole Option pricing model with the
following assumption used for grants during the applicable period.
Risk free rate .. 2.4%
Volatility ...... 96.16%
Expected life ... 1.5 years
Dividend yield .. 0%
During the year ended February 28, 2010, the Company recorded options
expense of $12,511 in the accompanying financial statements. As of
February 28, 2011 there was no unrecognized compensation cost related
to unvested options.
The following table summarizes the Company's stock options.
WEIGHTED-
WEIGHTED- AVERAGE
AVERAGE REMAINING
EXERCISE CONTRACTUAL
OPTIONS SHARES PRICE TERM
-------------------------------- ---------- --------- -----------
Outstanding at March 1, 2010 ... 3,400,000 $ 0.06 -
Granted ........................ - - -
Exercised ...................... - - -
Forfeited or expired ........... (1,250,000) 0.06 -
---------- --------- -----------
Outstanding at February 28, 2011 2,150,000 0.06 1.3
---------- --------- -----------
Exercisable at February 28, 2011 2,150,000 $ 0.06 1.3
---------- --------- -----------
Page 30
A summary of the status of the Entity's nonvested shares as of February
28, 2011 and changes during the year ended February 28, 2011 is
presented below.
WEIGHTED-
AVERAGE
GRANT-DATE
NONVESTED SHARES SHARE FAIR VALUE
-------------------------------- ---------- ----------
Nonvested at March 1, 2010 ..... 770,000 $ 0.06
Granted ........................ - -
Vested ......................... (520,000) 0.06
Forfeited ...................... (250,000) 0.06
---------- ----------
Nonvested at February 28, 2011 . - $ -
---------- ----------
NOTE 8 SALE-LEASEBACK TRANSACTION - OPERATING LEASE
On February 25, 1999, the Company entered into a sale-leaseback
arrangement whereby the Company sold its land and building at 24
Carpenter Road in Chester, New York and leased it back for a period of
20 years. The leaseback is accounted for as an operating lease. The
gain of $449,617 realized in this transaction has been deferred and is
amortized to income in proportion to rental expense over the term of
the related lease.
At February 28, 2011 minimum future rental payments are:
YEAR MINIMUM RENTAL PAYMENTS
---- -----------------------
2012 ....... $132,504
2013 ....... 132,504
2014 ....... 132,504
2015 ....... 132,504
2016 ....... 132,504
Thereafter . 397,512
----------
$1,060,032
==========
Rent expense for the years ended February 28, 2011 and 2010 aggregated
$132,504.
NOTE 9 FEDERAL AND STATE INCOME TAXES
The Company files federal and New York State income tax returns. Net
operating losses in the amount of $1,304,239 and $1,303,859 are
available to offset current and future federal and State corporate tax
liabilities respectively. These losses are scheduled to expire February
28, 2022 through February 28, 2027. The Company recorded a deferred tax
benefit related to these federal and state net operating losses. The
Company also anticipates that these losses will be utilized fully prior
to the prescribed carry forward periods.
Page 31
The provision (benefit) for income taxes consisted of:
2011 2010
---------- ----------
State income tax:
Deferred ....................... $ 84,210 $ (92,072)
Current ........................ 1,691 --
Federal income tax:
Deferred ....................... 403,133 (134,912)
Current ........................ -- --
---------- ----------
Total ................... $ 489,034 $ (226,984)
========== ==========
Income taxes calculated at statutory rates are substantially equivalent
to the applicable income taxes (benefit) reported in the Statements of
Operations.
The components of the (benefit) provision for deferred income taxes for
the years ended February 28, 2011, and 2010, respectively, were as
follows:
2011 2010
---------- ----------
Reduction of deferred tax asset
Valuation allowance ............ $ -- $ (226,984)
---------- ----------
Total ................... $ -- $ (226,984)
========== ==========
The components of deferred tax assets at February 28, 2011 and 2010,
respectively, are as follows:
2011 2010
---------- ----------
Deferred Tax Assets:
-------------------
Net operating loss carry forward $ 45,641 $ 532,984
---------- ----------
45,641 532,984
Less valuation allowance .......... -- --
---------- ----------
Deferred tax assets ............... $ 45,641 $ 532,984
---------- ----------
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheets as of February 28, 2011, and 2010, as
follows:
2011 2010
---------- ----------
Current Assets .................... $ 45,641 308,250
Noncurrent Assets ................. -- 224,734
---------- ----------
$ 45,641 532,984
---------- ----------
Page 32
NOTE 10 COMMITMENTS AND CONTINGENCIES
The Company was contingently liable to rework and fulfill a contractual
commitment of its product for a customer order as of February 28, 2010.
The total additional material and labor cost to complete this work
approximated $12,000. As of February 28, 2011, the Company and the
customer agreed that the agreement was null due to obsolescence of the
product. The related asset and liability was written off in 2011 with
minimal effect on the results of operations.
Page 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants in matters of
accounting principles or practices or financial statement disclosures in 2011 or
2010.
ITEM 9A(T). CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
our management, including our Chief Executive Officer, or CEO, acting as Chief
Financial Officer or CFO, of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of February
28, 2011. Based on that evaluation, our management, including our CEO/CFO,
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms, and is
accumulated and communicated to our management, including our CEO/CFO, to allow
timely decisions regarding required disclosure.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. The Company's internal
control over financial reporting is a process designed under the supervision of
the Company's Chief Executive Officer, also acting as Chief Financial Officer,
and implemented in conjunction with management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the Company's consolidated financial statements for external
purposes in accordance with generally accepted accounting principles.
There are inherent limitations in the effectiveness of any internal control,
including the possibility of human error and the circumvention or overriding of
controls. Accordingly, even effective internal control can provide only
reasonable assurance with respect to financial statement preparation. Further,
because of changes in conditions, the effectiveness of internal control may vary
over time.
Management assessed the effectiveness of the Company's internal control over
financial reporting as of February 28, 2011. This assessment was based on
criteria for effective internal control over financial reporting described in
"Internal Control - Integrated Framework," issued by the Committee of Sponsoring
Organization of the Treadway Commission (COSO). Based on this assessment,
management determined that, as of February 28, 2011 the Company maintained
effective internal control over financial reporting.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to the Dodd-Frank Act that permits
the Company to provide only management's report in the annual report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There has been no change in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) during the fiscal year ended
February 28, 2011 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Page 34
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The following table sets forth-certain information with respect to the Executive
Officers and Directors:
NAME AGE POSITION/HELD SINCE
---- --- -------------------
Andrew I. Sealfon 65 President 1980,
Treasurer, CFO 1983,
Chairman 1989,
Director 1980,
CEO 1986
Paul Mark Baker 60 Director 1991
Remo Spagnoli 81 Director 1993
Mark Pastreich 81 Director 2011
Mr. Sealfon is deemed a "parent" and "promoter" as those terms are defined under
the Securities Act of 1933 as amended.
All directors hold offices until the next annual meeting of shareholders or
until their successors are elected. Executive Officers hold office at the
discretion of the Board of Directors.
Mr. Sealfon co-founded Repro-Med Systems, Inc. in 1980. He is an electrical
engineer and inventor and has been granted numerous United States patents. Mr.
Sealfon is a graduate of Lafayette College.
Dr. Baker earned a medical degree from Cornell University Medical College. He is
a practicing pediatrician and is attending at Department of Pediatrics Horton
Memorial Hospital, Middletown, NY and attending at New York Hospital-Cornell
Medical Center in New York City. Dr. Baker assisted us in the development of the
RES-Q-VAC(R) Suction System. In addition, Dr. Baker has published results of use
of the RES-Q-VAC(R) in a letter to LANCET, a medical journal.
Mr. Spagnoli is a principal founder and past President and Chairman of CRS,
Inc., Newburgh, NY, a manufacturer of proprietary inventory control and point of
sale software and distributor of computer equipment.
Mr. Pastreich is a businessman, and a longtime real estate investor and broker.
He has served on numerous for-profit and not-for-profit boards. Amongst his
other various real estate holdings, he is presently a partner in Casper Creek
LLC, which owns the building leased by Repro-Med Systems.
ITEM 11. EXECUTIVE COMPENSATION
Andrew I. Sealfon, President, received $163,917 in salary from Repro-Med during
the fiscal year ended February 28, 2011. Mr. Sealfon had been granted incentive
stock options, which were issued on June 6, 2007, in Repro-Med under its Stock
Option Agreement.
Page 35
The officers are reimbursed for travel and other expenses incurred on behalf of
Repro-Med Systems, Inc. We do not have pension or profit sharing plans.
SUMMARY COMPENSATION
--------------------
NAME & POSITION YEAR SALARY OTHER *
--------------- ---- -------- -------
Andrew I. Sealfon, President 2011 $163,917 -
2010 $155,007 -
2009 $122,499 -
2008 $109,347 -
2007 $116,757 -
* Other compensation includes car allowance (not itemized here).
Table of aggregated options exercised in the fiscal year and option values at
year-end February 2011:
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED YEAR-END YEAR-END
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME OF INDIVIDUAL EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
------------------ -------- -------- ------------- -------------
A. I. SEALFON
Exercisable 0 0 2,000,000 $0
Unexercisable 0 0 - $0
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 2011, the number of shares of
Common Stock beneficially owned by each person owning more than 5% of the
outstanding shares, by each officer and director, and by all officers and
directors as a group:
NAME OF PRINCIPAL SHAREHOLDERS NUMBER OF PERCENT
AND IDENTITY OF GROUP SHARES OWNED OF CLASS NOTES:
------------------------------------- ------------ -------- ------
Andrew I. Sealfon* .................. 5,267,250 14% 1
Dr. Paul Mark Baker ................. 1,166,500 3% 2
Remo Spagnoli ....................... 1,078,381 3% -
Mark Pastreich ...................... 105,000 - -
All Directors and Officers as a Group 7,617,131 20% -
* Andrew I. Sealfon is deemed a "parent" and a "promoter" of Repro-Med Systems,
Inc. as those terms are defined under the Securities Act of 1933, as amended.
(1) Does not include 690,000 shares of common stock owned by members of Mr.
Sealfon's family, as to which Mr. Sealfon disclaims beneficial ownership.
(2) Includes beneficial shares owned by Andrea Baker.
Certain shares and/or options, which have been disclosed above, were issued to
officers, directors, or 10% shareholders. The Company has reminded each of said
directors to file an SEC Form 3, 4, or 5 as applicable, with respect to such
stock issuances or option grants.
Page 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To reduce corporate travel expenses, we maintain and operate a corporate
aircraft. Since 1992, the aircraft has been leased from AMI Aviation, Inc. Mr.
Sealfon is a majority shareholder in AMI Aviation. The lease expenses paid were
$21,500 in each of 2011 and 2010. We believe the AMI lease is on terms
competitive with those that could be obtained from unaffiliated third parties.
The President of the Company loaned the Company, $100,000 at 8% interest. The
loan was paid in full in June 2010.
In February 2009, the Company borrowed $672,663 from a Director of the company,
at 6% interest per annum. In June 2009, 755,000 shares of stock were issued to
the director at $0.11 per share to reduce the debt. The remaining debt matures
in February 2021.
In June 2010, a director of the company, and the only preferred shareholder,
converted his 10,000 shares of preferred stock for 952,381 shares of common
stock. The conversion was based on a rate of $.105 per share for a total value
of $100,000.
In February 2011, the company added Mr. Mark Pastreich as a director. Mr.
Pastreich is a principal in the company that owns the building leased by
Repro-Med Systems, Inc. The Company is in year twelve of a twenty-year lease. No
changes have been made to the lease terms as a result of his directorship, and
none are anticipated before the end of the lease.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of the fees billed to us by McGrail Merkel Quinn &
Associates, P.C., an independent registered public accounting firm, for
professional services rendered for the fiscal years ended February 28, 2011 and
February 28, 2010, respectively.
FEE CATEGORY FISCAL 2011 FEES FISCAL 2010 FEES
------------ ---------------- ----------------
Audit Fees (1) $48,500 $49,500
(1) Audit fees consist of aggregate fees billed for professional
services rendered for the audit of our annual financial statements
and review of the interim financial statements included in
quarterly reports or services that are normally provided by the
independent auditors in connection with statutory and regulatory
filings or engagements for the fiscal years ended February 28, 2011
and February 28, 2010, respectively. All Other Fees, if any,
consist of aggregate fees billed for products or services provided
by McGrail Merkel Quinn & Associates, P.C., other than those
disclosed above.
The Board of Directors is responsible for the appointment, compensation, and
oversight of the work of the independent auditors and approves in advance any
services to be performed by the independent auditors, whether audit-related or
not. The Board of Directors reviews each proposed engagement to determine
whether the provision of services is compatible with maintaining the
independence of the independent auditors. All of the fees shown above were
pre-approved by the Board of Directors.
Page 37
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
(1) Financial Statements - The following financial statements are
incorporated by reference in Part II, Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules - The Financial Statement Schedules
are incorporated by reference in Part II, Item 8 hereof.
(3) Exhibits
The following exhibits are filed herewith or incorporated by
reference as part of this Annual Report.
EXHIBIT NO. DESCRIPTION
----------- -----------
3(i) Articles of Incorporation, by reference from the
Regulation a Offering Statement of Repro-Med Systems,
Inc., dated November 12, 1982.
3(ii) By-Laws, by reference from the Annual Report on Form
10-K of Repro-Med Systems, Inc. for the fiscal year
ended February 1987.
31.1 Certification of the Principal Executive
Officer/Principal Financial Officer of registrant
required under Section 302 of the Sarbanes-Oxley Act
of 2002, filed herewith.
32.1 Certification of the Principal Executive
Officer/Principal Financial Officer of registrant
required under Section 906 of the Sarbanes-Oxley Act
of 2002, filed herewith.
Page 38
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 on May 27, 2011.
REPRO-MED SYSTEMS, INC.
/s/ Andrew I. Sealfon
---------------------
Andrew I. Sealfon, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on May 27, 2011.
/s/ Andrew I. Sealfon
---------------------
Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, and
Principal Executive Officer, Principal Financial Officer
/s/ Dr. Paul Mark Baker
-----------------------
Dr. Paul Mark Baker, Director
/s/ Remo Spagnoli
-----------------
Remo Spagnoli, Director
/s/ Mark Pastreich
------------------
Mark Pastreich, Director
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