Repro-Med Systems, Inc. (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 accompanying unaudited financial statements as of May 31, 2012
have been prepared in accordance with generally accepted accounting principles in accordance with instructions to regulation S-X.
Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in
the United States of America for complete financial presentation.
In the opinion of the Company’s management, the financial
statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial
position as of May 31, 2012 and the results of operations and cash flow for the three-month periods ended May 31, 2012 and 2011.
The results of operations for the three months ended May 31, 2012
and 2011 are not necessarily indicative of the results to be expected for the full year. These interim financial statements should
be read in conjunction with the financial statements and notes thereto of the Company and management’s discussion and analysis
of financial condition and results of operations included in the Company’s Annual Report for the year ended February 29,
2012, as filed with the Securities and Exchange Commission on Form 10-K.
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.
The Company has evaluated subsequent events through July 16, 2012,
the date on which the financial statements were issued.
Management does not believe that any of the standards adopted by
the Financial Accounting Standards Board that have been adopted but are not yet effective will have a material effect on the Company’s
The Company leases an aircraft from a Company controlled by the
president. The lease payments aggregated were $5,375 for the three-months ended May 31, 2012 and 2011. The original lease agreement
has expired and the Company is currently on a month-to-month basis for rental payments.
PART I – ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-Q contains certain “forward-looking”
statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to us that
are based on the beliefs of the management, as well as assumptions made and information currently available. Our actual results
may vary materially from the forward-looking statements made in this report due to important factors such as uncertainties associated
with future operating results, unpredictability related to Food and Drug Administration regulations, introduction of competitive
products, limited liquidity, reimbursement related risks, government regulation of the home health care industry, success of the
research and development effort, market acceptance of FREEDOM60®, 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 marketplace of new and existing products, ability to penetrate new markets, our success in enforcing
and obtaining patents, obtaining required Government approvals and attracting and maintaining key personnel that could cause the
actual results to differ materially. Repro-Med does not undertake any obligation to release publicly any revision to these forward-looking
statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
THREE MONTHS ENDED May 31, 2012 VS. May 31, 2011
Net sales increased 16.7% overall from $1,493,970 in the quarter
ended May 31, 2011 to $1,744,165 in the quarter ended May 31, 2012. This was due in part to a substantial increase in sales of
RMS High-Flo™ Subcutaneous Safety Needle Sets, quarter over quarter. Available in Europe since late February, 2011, the new
RMS High-Flo Subcutaneous Needle Sets were formally introduced to the US market in September, 2011, through an advertising campaign
that included trade shows, mailings and a direct sales campaign. The company’s sales of its FREEDOM60 and RMS High-Flo™
needle set product lines improved in both domestic and international markets.
Net Operating Profit was $146,121 for the quarter ended May 31,
2012 as compared to $331,961 from the same period last year. This change is attributable to the increases in cost of goods sold,
a bonus and salary increase authorized by the Board of Directors for the CEO, expansion of sales and marketing staffs, additional
advertising and promotions, as well as increases in research and development associated with the development of new products and
product enhancements. Accordingly, net income decreased 54.4% from $197,959 to $90,339.
Selling, General and Administrative costs increased 50.3% from $586,778
in 2011 to $881,770 in 2012 primarily as the result of hiring additional staff in the sales and marketing areas, a bonus and salary
increase authorized by the Board of Directors for the CEO calculated to partially reimburse him for a federal tax payment due in
connection with his exercise of stock options to acquire shares of our common stock during our prior fiscal year, increased payroll
and increased marketing expenses for advertising and trade shows.
Cost of goods sold increased $97,177, or 18.0%, from $540,185 to
$637,362 due to an increase in sales, an expanded production payroll, and the addition of a cost differential for a night shift
with related benefits. The gross profit margin remained nearly constant this quarter at 63.5% compared to 63.8% compared to the
same quarter in 2011
Interest expense decreased by 10.8% to $7,207 in 2012 from $8,076
for the comparative quarter in 2011 as a result of lower interest payments on long term debt.
Research and Development expenses increased $25,648 or 201.5% from
$12,727 in 2011 to $38,375 primarily due to R & D expenses incurred on new product development, primarily associated with the
new RMS High-Flo Subcutaneous Needle Sets.
Depreciation and amortization expenses increased by $18,218 from
$22,319 in 2011 to $40,537 in 2012 due to increased investment in capital equipment.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash provided from Operations was $102,806 for the three months
ended May 31, 2012 as compared with net cash provided by operations of $346,619 for the previous three months ended May 31, 2011.
This change is primarily due to an increase in inventory to support the RMS High-Flo Subcutaneous Needle Set product line and lower
net income for the recent quarter. As the result of improved collections, accounts receivables declined by 16.7% over the three
months ended May 31, 2012 even though overall sales increased.
We continue to experience an increase in sales. With these increases
and the capital we currently have at the end of this period, we will continue to meet or exceed the company’s liquidity needs
for the next twelve months.
On June 5, 2012, we announced that the results of an Active Controlled
Clinical Simulated Use Study confirmed that RMS High-Flow™ Subcutaneous Needle Sets are “safety sets.” The sets’
butterfly wing closures encase needles after use and help to protect against accidental needle stick injuries, an area of concern
to the medical community. The sets were renamed to RMS High-Flo™ Subcutaneous Safety Needle Sets to reflect the safety feature.
This new name is used in this filing.
BRANDING AND RECOGNITION
We continue to enhance marketing effects with an expanded schedule
of advertising for its product lines in appropriate industry publications on a monthly basis. The company also exhibited at several
infusion and EMS trade shows in the first quarter of the fiscal year.
The FREEDOM60® Syringe Infusion Pump is designed for ambulatory
medication infusions. For the home care patient, FREEDOM60® is an easy-to-use lightweight mechanical pump using a 60cc syringe,
completely portable, cost effective and maintenance free, with no batteries to replace and no cumbersome IV pole. For the infusion
professional, FREEDOM60® delivers accurate infusion rates and uniform flow profiles providing consistent transfer of medication.
The FREEDOM60® is popular in the treatment of Primary Immune
Deficiency by injecting immune globulin (IgG) under the skin as a subcutaneous administration (SCIg). This method has provided
patients with vastly improved quality of life with much fewer unpleasant side effects over the traditional intravenous route. The
FREEDOM60® is an ideal system for this administration since the patient is able to self-medicate at home. The pump is easily
configured for this application, and the FREEDOM60® is the lowest cost infusion system available in a heavily cost constrained
market. We have advertised to the IgG market that FREEDOM60® 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 more comfortable administration with fewer side effects for those patients.
We have expanded the use of the FREEDOM60® to cover antibiotics
including the widely used and somewhat difficult to administer Vancomycin and beta lactams with longer infusion times. We have
also found a following for FREEDOM60® for use in treating thalissemia with the drug Desferal®. In Europe, we found success
in using the FREEDOM60® for pain control, specifically post-operative epidural pain administration. Our European market also
uses the FREEDOM60®for chemotherapy as well as subcutaneous immune globulin.
RMS HIGH-FLO™ SUBCUTANEOUS SAFETY NEEDLE SET ADDITION TO
FREEDOM60® PRODUCT LINE
We received approval from the U.S. Food and Drug Administration
(FDA) on May 20, 2011, for domestic marketing of our new subcutaneous needle administration set. Previously available internationally,
the needle set is branded the RMS High-Flo™ Subcutaneous Safety Needle Set.
The RMS High-Flo™ Subcutaneous Safety Needle Set was developed
as an improvement in performance and safety over similar devices. Our design permits drug flows which are the same or faster
than those achieved with larger gauge needles currently on the market. Offered in needle lengths of 4mm, 6mm, 9mm, 12mm and 14mm,
the sets are available in combinations for single, double, triple, and quadruple infusions. Using a Low Residual “Y”
Connector, needle sets can deliver to as many as eight infusion sites.
THE MARKET FOR INFUSION PUMPS & DISPOSABLES
The ambulatory infusion market has been rapidly changing due to
reimbursement issues. Insurance reimbursement has drastically reduced the market share of high-end electronic type delivery systems
as well as high-cost disposable non-electric devices, providing an opportunity for the FREEDOM60®. We believe market pressures
have moved providers to consider alternatives to expensive electronic systems especially for new subcutaneous administrations which
usually cannot be done with gravity. Due to cost concerns, some patients have been trained to administer intravenous drugs through
IV push where the drug is pushed into the vein directly from a syringe. This is a low-cost option but has been associated with
complications and considered by many to be a high-risk procedure. Thus, the overall trend has been towards syringe pumps due to
the low-cost of disposables.
IMPORTANCE OF INSURANCE REIMBURSEMENT TO FREEDOM60® SALES
In order to receive more favorable Medicare reimbursement for our
FREEDOM60® Syringe Infusion System, we had submitted a formal request for a HCPCS coding verification with the Statistical
Analysis Durable Medical Equipment Regional Carrier (SADMERC). It was the determination that the Medicare HCPCS code(s) to bill
the four Durable Medical Regional Carries (DMERCs) should be: “E0779 Ambulatory infusion pump, mechanical, reusable, for
infusion 8 hours or greater.” The new code significantly increases the reimbursement for the FREEDOM60® for billable
syringe pump application approved by Medicare. Current approved uses under Medicare include among others, subcutaneous immune globulin,
antivirals, antifungals, and chemotherapeutics. In June 2007, Medicare issued a letter of clarification stating in part:
“The FREEDOM60® Syringe Infusion Pump is the only allowable
pump to be billed with the Subcutaneous Immune Globulin (SCIg). The code for this pump for dates of service 1/1/00 - 5/16/07 is
E0780. For dates of service on or after 5/17/07, the correct code is E0779 per SADMERC. The items being billed must be supported
by corresponding documentation. All other pumps or modifiers will result in a denial.”
COMPETITION FOR THE FREEDOM60®
Competition for the FREEDOM60® for IgG is consists mostly of
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.
In expanded uses beyond SCIg, competition for FREEDOM60® would
come from gravity bags and elastomeric pumps in addition to electric/electronic pumps.
There is the potential for new drugs to enter the market, such as
using Hyaluronidase which can facilitate absorption of IgG, making multiple site infusions unnecessary and changing the market
conditions for devices such as the FREEDOM60®. We believe the principle behind the FREEDOM60® is ideal for all these new
drug combinations, but there can be no assurance that these newer drugs will have the same needs and requirements as the current
drugs being used.
There can be no assurance that Medicare will continue to provide
reimbursement for the FREEDOM60® or they may allow reimbursement for other infusion pumps that are currently in the market
or new ones that may enter shortly, which could adversely affect our sales into this market.
RES-Q-VAC® PORTABLE MEDICAL SUCTION
The RES-Q-VAC® Emergency Airway Suction System is a lightweight,
portable, hand-operated suction device that removes fluids from a patient’s airway by attaching the RES-Q-VAC® pump to
various proprietary sterile and non-sterile single-use catheters sized for adult and pediatric suctioning. The one-hand operation
makes it extremely effective and the product is generally found in emergency vehicles, hospitals and wherever portable aspiration
is a necessity, including backup support for powered suction systems. The Full Stop Protection® filter(FSP) and disposable
features of the RES-Q-VAC® reduce the risk of exposing 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.
A critical component and advantage of the RES-Q-VAC® system
is our Full Stop Protection® filter, a patented filtering system that both prevents leakage and overflow 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® with the Full Stop Protection® falls under the
engineering controls of the Bloodborne Pathogen regulation and that the Product’s 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 and HIV,
One advantage of our RES-Q-VAC® airway suction system is versatility.
With the addition of Full Stop Protection®, we created specific custom RES-Q-VAC® kits for various vertical markets:
Emergency Medicine - we make several special kits for emergency
use, which contain all the catheters necessary to treat adults as well as infants or children. These first responder kits are generally
non-sterile. We also have special attachments available for the advanced paramedic to treat patients who are intubated.
Respiratory - in-home care, long-term care, situations requiring
frequent suctioning such as cystic fibrosis patients, patients with swallowing disorders, elderly, patients on ventilators and
with tracheostomies all benefit from the portability, cost and performance of the RES-Q-VAC®. In hospitals, the RES-Q-VAC®
provides emergency backup due to power loss or breakdown of the wall suction system.
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® is available sterile with
Full Stop Protection® for the ultimate in performance and to meet all the OSHA regulations and CDC guidelines for use in treating
patients in isolation, and in any location. Hospitals are required under the EMTALA regulations to provide emergency treatment
to patients anywhere in the primary facility and up to 250 yards away. The RES-Q-VAC® 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 and portable suctioning for outside events and travel. Chronic suction can be accommodated with RES-Q-VAC®,
which can be left by the bedside for immediate use during critical times.
Dental Applications - we offer a version of the RES-Q-VAC®,
called DENTAL-EVAC®, which addresses the needs of oral surgeons for emergency backup suction during a procedure. DENTAL-EVAC®
is supplied with the dental suction attachments such as saliva ejector and high volume evacuator.
Military Applications - due to its lightweight, portability, and
rapid deployment, we believe that the RES-Q-VAC® is ideal for any military situation. In addition, 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®’s
compact size, powerful pump, and full protection of the user from any contamination, gives us a competitive edge in this market.
We continue 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.
As part of our sales efforts in the emergency medicine field, we
exhibited at the EMS Today Show in Baltimore, March 5-9, 2012. This offered emergency medicine technicians, paramedics, firefighting
and police professionals, and others the opportunity to test RES-Q-VAC® for themselves and helped to support the efforts of
COMPETITION FOR THE RES-Q-VAC®
We believe that the RES-Q-VAC® is currently the performance
leader for manual, portable suction instruments. In the emergency market, the primary competition is the V-Vac™ from Laerdal.
The V-Vac™ is more difficult to use, cannot suction infants, and cannot be used while wearing heavy gloves such as in chemical
warfare or in the extreme cold. Laerdal has more resources than Repro-Med Systems and had begun marketing the V-Vac™ before
RES-Q-VAC® 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® substantially separates the
RES-Q-VAC® from competitive units, which tend to leak fluid when becoming full or could pass airborne pathogens during use.
There is a heightened concern from healthcare professionals concerning exposure to disease and we believe the RES-Q-VAC® provides
improved protection for these users.
PART I – ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
PART I – ITEM 4. CONTROLS AND PROCEDURES.
The Company’s management, including the Company’s Principal
Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s “disclosure controls
and procedures “as such is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). Based upon their evaluations, the Principal Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective
for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under
the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s
management, including its Principal Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
There have been no changes in the Company’s internal control
over financial reporting during the quarter ended May 31, 2012 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are, from time to time, subject to claims and suits arising in
the ordinary course of business, including claims for damages for personal injuries and employment related claims.
ITEM 1A. RISK FACTORS.
Not required for smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
ITEM 4. MINE SAFETY DISCLOSURES.
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS.
||Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act 2002|
||Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act 2002|
||Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 2002|
||Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 2002|
||Interactive Data Files of Financial Statements and Notes.|
* In accordance with Regulation S-T, the Interactive Data Files
in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
||REPRO-MED SYSTEMS, INC.|
|July 16, 2012
||/s/ Andrew I. Sealfon|
||Andrew I. Sealfon, President Chairman of the Board, Director, Principal Executive Officer|
|July 16, 2012
||/s/ Michael R. Boscher|
||Michael R. Boscher, Treasurer and Chief Financial Officer|