10QSB 1 repromed_10-qsb.txt FORM 10-QSB 08-31-2006 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES ACT OF 1934 For the quarterly period ended AUGUST 31, 2006 --------------- Commission File Number 0-12305 ------- REPRO-MED SYSTEMS, INC. ----------------------- (Exact name of registrant as specified in its charter) NEW YORK 13-3044880 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 24 CARPENTER ROAD, CHESTER, NY 10918 ------------------------------ ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (845) 469-2042 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ( X ) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 31, 2006 ----- ------------------------------ Common stock, $.01 par value 30,613,286 Shares REPRO-MED SYSTEMS, INC. TABLE OF CONTENTS PAGE PART I ---- ITEM 1. Financial Statements Balance Sheet (Unaudited) - August 31, 2006 and February 28, 2006 (Audited) ............................................... 3 Statements of Operations (Unaudited) - for the three-months ending August 31, 2006 and August 31, 2005 ................................ 5 Statements of Cash Flow (Unaudited) - for the three months ending August 31, 2006 and August 31, 2005 ................................ 6 Notes to Unaudited Financial Statements ................................... 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................. 8 PART II ITEM 1. Legal Proceedings ................................................ 14 ITEM 2. Changes in Securities ............................................ 14 ITEM 3. Defaults Upon Senior Securities .................................. 14 ITEM 4. Submission of Matters to a Vote of Security Holders .............. 14 ITEM 5. Other Information ................................................ 14 ITEM 6. Exhibits and Reports on Form 8-K ................................. 15 2 REPRO-MED SYSTEMS, INC. BALANCE SHEET AUGUST 31, February 28, 2006 2006 (UNAUDITED) (AUDITED) ----------- ----------- ASSETS ------ CURRENT ASSETS -------------- Cash & Cash Equivalents ...................... $ 120,948 26,753 Accounts Receivable, net ..................... 167,052 147,579 Inventory .................................... 423,363 347,392 Prepaid Expenses ............................. 28,715 28,182 ----------- ----------- TOTAL CURRENT ASSETS ......................... 740,078 549,906 PROPERTY & EQUIPMENT, NET .................... 236,524 268,096 OTHER ASSETS ------------ Patents, net of amortization ................. 31,870 35,214 Goodwill, net of amortization ................ 8,789 8,969 Security Deposits ............................ 27,652 27,652 ----------- ----------- TOTAL OTHER ASSETS ........................... 68,311 71,835 ----------- ----------- TOTAL ASSETS ................................. $ 1,044,913 $ 889,837 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY ---------------------------------- CURRENT LIABILITIES ------------------- Accounts Payable ............................. $ 326,149 $ 284,095 Notes Payable to Related Parties ............. 45,618 6,834 Accrued Expenses ............................. 99,502 46,172 Note Payable to Bank ......................... - 198,553 Accrued Payroll and Related Taxes ............ 9,244 17,030 Accrued Interest ............................. 58,238 42,663 Accrued Preferred Stock Dividends ............ 36,000 32,000 Current Portion Capital Lease Obligations .... 4,080 9,437 ----------- ----------- TOTAL CURRENT LIABILITIES .................... 578,831 636,784 ----------- ----------- OTHER LIABILITIES ----------------- Capital Lease Obligations, Less Current Portion ......................... - 616 Deferred Capital Gain Income ................. 281,016 292,256 Long-Term Debt - Notes Payable ............... 905,000 530,000 ----------- ----------- TOTAL LIABILITIES ............................ $ 1,764,847 $ 1,459,656 =========== =========== (continued) 3 REPRO-MED SYSTEMS, INC. BALANCE SHEET (continued) AUGUST 31, February 28, 2006 2006 (UNAUDITED) (AUDITED) ----------- ----------- STOCKHOLDERS' EQUITY -------------------- Preferred Stock, 8% Cumulative, liquidation value $100,000 Par Value, $0.01 Authorization 2,000,000 Shares Issued & Outstanding 10,000 Shares @ August 31, 2006 and February 28, 2006 ....... 100 100 Common Stock, $.01 Par Value, Authorized 50,000,000 Shares, 30,613,286 shares and 29,012,286 shares issued and outstanding at August 31, 2006 and February 28, 2006, Respectively ................................ 306,383 290,123 Additional Paid-in Capital ................... 2,511,288 2,446,248 Accumulated Deficit .......................... (3,395,705) (3,164,290) ----------- ----------- (577,934) (427,819) Less Treasury Stock, 2,275,000 shares at August 31, 2006 and February 28, 2006 ........ (142,000) (142,000) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY (DEFICT) ......... (719,934) (569,819) ----------- ----------- TOTAL LIABILITIES & STOCKHOLDER'EQUITY ....... $ 1,044,913 $ 889,837 =========== =========== 4 REPRO-MED SYSTEMS, INC. STATEMENTS OF OPERATIONS UNAUDITED
FOR THE 3 MONTHS ENDED FOR THE 6 MONTHS ENDED AUG 31, 2006 AUG 31, 2005 AUG 31, 2006 AUG 31, 2005 ------------ ------------ ------------ ------------ (Restated) (Restated) SALES Net Sales of Products ........ $ 416,009 $ 419,335 $ 763,733 $ 801,637 COST AND EXPENSES Cost of Goods Sold ........... 144,690 171,948 295,000 350,605 Selling, General & Administrative Expenses ..... 224,169 243,737 510,111 504,834 Research and Development ..... 11,567 7,675 21,632 18,636 Stock-Based Compensation ..... 10,000 - 10,000 - Depreciation and Amortization ................ 15,886 20,377 35,096 40,481 ------------ ------------ ------------ ------------ TOTAL COST AND EXPENSES ...... 406,312 443,737 871,839 914,556 ------------ ------------ ------------ ------------ (LOSS) FROM OPERATIONS ....... 9,697 (24,402) (108,106) (112,919) Non-Operating Income (Expense) Interest (Expense) ......... (27,600) (19,544) (47,063) (37,317) Other Financing Costs ...... (71,300) (1,250) (71,300) (42,500) Interest & Other Income .... 54 1,963 54 3,578 ------------ ------------ ------------ ------------ (98,846) (18,831) (118,309) (76,239) ------------ ------------ ------------ ------------ (LOSS) BEFORE INCOME TAXES ... (89,149) (43,233) (226,415) (189,158) Provision for Income Taxes ................. - (1,000) (1,000) (1,000) ------------ ------------ ------------ ------------ NET (LOSS) AFTER TAXES ....... $ (89,149) $ (44,233) $ (227,415) $ (190,158) ============ ============ ============ ============ (LOSS) PER COMMON SHARE Primary ...................... $ (0.01) $ (0.01) $ (0.01) $ (0.01) Fully Diluted ................ $ (0.01) $ (0.01) $ (0.01) $ (0.01) Average Common Shares Outstanding .................. 30,613,286 26,427,000 ============ ============ See Accompanying Notes to Financial Statements 5
REPRO-MED SYSTEMS, INC. STATEMENTS OF CASH FLOWS UNAUDITED FOR THE SIX MONTHS ENDED ------------------------ August 31, August 31, 2006 2005 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) .................................. $(227,415) $(190,158) Adjustments to reconcile net loss to cash used in operating activities: Stock-Based Compensation ........................... 11,250 42,500 Depreciation and Amortization ...................... 35,096 40,481 Capital Gain - Building Lease ...................... (11,240) (10,865) Decrease (Increase) in Accounts Receivable ......... (19,473) 4,087 Decrease (Increase) in Inventory ................... (75,971) 13,116 Decrease (Increase) in Prepaid Expenses ............ (533) 14,338 Decrease (Increase) in Accounts Payable ............ 42,054 47,578 Decrease (increase) in Accrued Expenses ............ 129,811 (28,323) --------- --------- NET CASH (USED IN) OPERATIONS ...................... (116,421) (67,246) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures ............................... - (6,657) --------- --------- NET CASH USED IN INVESTING ACTIVITIES .............. - (6,657) CASH FLOW PROVIDED BY FINANCING ACTIVITIES Increase in Notes Payable - President and Others ... 413,784 80,000 Preferred Stock Dividend ........................... (4,000) (4,000) Repayment of Bank Loan ............................. (198,553) - Payments, Increased Obligations on Capitalized Leases ................................. (616) (12,316) --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 210,615 63,684 --------- --------- NET (DECREASE) INCREASE IN CASH .................... 94,194 (10,219) Cash and Cash Equivalents, beginning of period ..... 26,753 37,330 --------- --------- Cash and Cash Equivalents, end of period ........... $ 120,947 $ 27,111 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest ......................................... $ 47,063 $ 26,010 Income Taxes ..................................... - 1,000 See Accompanying Notes to Financial Statements 6 REPRO-MED SYSTEMS, INC. NOTES TO THE FINANCIAL STATEMENTS UNAUDITED BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with instructions to Form 10-QSB. Accordingly, they do not include all of the information and disclosures required for annual financial statements. These financial statements should be read in conjunction with the financial statements and related footnotes for the year ended February 28, 2006 included in the Form 10-KSB for the year then ended. In the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of August 31, 2006 and the results of operations and cash flows for the six month period ended August 31, 2006 and 2005 have been included. The results of operations for the three-month period ended August 31, 2006, are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements and footnotes thereto included in the Company's Form 10-KSB as filed with the Securities and Exchange Commission for the year ended February 28, 2006. STOCKHOLDERS' EQUITY/NOTES PAYABLE In connection with the Company's convertible notes, the Company is obligated to issue four shares of its common stock each year for each dollar of principal borrowed. As of May 31,2006 the Company issued an additional 1,401,000 shares for previously executed note agreements. GOING CONCERN As shown in the accompanying financial statements, for the three months ended August 31, 2006 the Company had an operating profit of $9,697, although, due to interest and other financing costs incurred, had a net loss of $89,149 and has an accumulated deficit of $3,395,705. Additionally, for the three months ended August 31, 2006, the Company had a positive working capital of $161,247. For the six months ended August 31, 2006 the Company had an operating loss of $108,106 and, due to interest and other financing costs incurred, had a net loss of $227,415 and had an accumulated deficit of $3,395,705. The Company is seeking to raise additional working capital through debt or equity channels and is working with direct and outside distributors to increase the market share in the European and U.S. markets. However, even if the Company does raise capital through debt or equity channels or increase its sales through new strategies, there can be no assurances that the net proceeds of the capital raised or the revenue generated from the new marketing strategies will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. 7 RELATED PARTY LOANS During the quarter ended August 31, 2006, the President and Chief Executive officer acquired certain receivables from the Company at face value which are paid back as the receivables are collected. During the quarter ended August 31, 2006 a member of the Company's Board of Directors made a series of loans to the Company totaling $325,000 memorialized by a promissory note due April 30, 2008. $200,000 of this capital was used to satisfy the M&T loan. The Note carries a 6% annual interest rate and grants the Holder 150,000 warrants to purchase RMS common stock at ten (10) cents per share. The Company has given the holder the right to participate, at the Holders option, in any debt or equity offering made by the Company prior to repayment with the right to apply the note to such participation. PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-QSB contains certain "forward-looking" statements as that term is defined in the federal securities laws. Generally these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of managements plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The events described in forward-looking statements contained in this Quarterly Report may not occur. The words "may," "will," "expect," "believe," "anticipate," "project," "plan," "intend," "estimate," and "continue," and their opposites and similar expressions are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, that may influence the accuracy of the statements and the projections upon which the statements are based. Factors which may affect our results include, but are not limited to, the risks and uncertainties discussed in Item 6 of this Annual Report under "Factors That May Affect Future Results and Financial Condition". Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise. THREE MONTHS ENDED AUGUST 31, 2006 AND 2005 Sales of the FREEDOM60 Syringe Infusion System and related accessories increased 88% in the quarter ending August 31, 2006, as compared to the same period in 2005. We attribute this to increased marketing and sales efforts along with the increasing popularity of the FREEDOM60 in administering IgG subcutaneously. We also experienced a 42% increase in revenues from non-core products (Gyneco, Osbon). However, sales of the RES-Q-VAC and accessories declined 40% quarter over quarter. This more than offset our revenue increases in other product lines. 8 As a result, total sales for the second quarter declined 1% to $416,009 compared to $419,335 in 2005. Although U.S. sales increased by 38%, the International market declined over 59% (or $112,560) with the sales decline concentrated in Europe and the U.K. The Company has increased its sales presence and been active in trade shows in the UK and European market in an effort to reverse this trend. Gross profit (Net Sales less Cost of Goods Sold) increased from 59% of net sales in 2005 to 65% in 2006 due, in part, to price increases, better inventory controls and management of fixed overhead expenses such as rent, utilities and insurance that are partially allocated to Cost of Goods Sold. Selling, general and administrative expense decreased 8% ($19,568) to $224,169 in the quarter ending August 31, 2006 from $243,737 in the corresponding quarter in 2005 reflecting, in part, cost controls put in place despite an increased sales and marketing payroll and increased spending on sales and marketing efforts including mailings, trade shows and associated travel. Research and development expenses increased by $3,892, or approximately 51%, from Q-2 2005 to 2006, principally due to increased focus on product enhancements. Depreciation and amortization expense decreased by $4,491 period over period as the assets were written down and some reached their depreciable life. Interest and financing costs increased substantially period over period to $117,113 in 2006 from $79,817 as shown in the restated 2005 results. $47,063 of this amount reflects interest actually paid as a result of the promissory note program along with an increase in the prime lending rate, to which these interest rates are tied. $71,300 of this amount reflects the value of the stock issued in accordance with the financing terms of the program. The Other Income category was primarily partial reimbursement from a job training program for production payroll expenses incurred and expensed in FY 2005. Net Loss increased by $44,916 from a loss of $44,233 in the quarter ended August 31, 2005 to a loss of $89,149 in the quarter ending August 31, 2006. This loss was due to the interest paid in cash and stock for the promissory note program. SIX MONTHS ENDED AUGUST 31, 2006 VS. 2005 Despite a 44% increase in FREEDOM60 sales, net sales for the six-months ended August 31, 2006, caused by lower sales of the Res-Q-Vac, declined approximately 5%, to $763,733 from $801,637 for the six-months ended August 31, 2005. Sales of the RES-Q-VAC decreased almost 50% for the six-months ended August 31, 2006 vs. the six-months ended August 31, 2005 due to a softening in the EMS market and the anticipated lead time in penetrating new RES-Q-VAC markets, including the hospital market. The Company sales in the non-core Gyneco, Restore and OEM product lines increased by $41,868 (55%) for the six-months ended August 31, 2006 vs. the six-months ended August 31, 2005. Gross profit increased to 61% of net sales in 2006 from 56% in 2005. Selling, general and administrative expense increased 1% ($5,278) to $510,111 in 2006 from $504,834 in 2005. 9 Research and development expenses increased $2,996 from 2005 to 2006. Depreciation and amortization expense decreased by $5,385 period over period as the result of equipment reaching the end of its depreciable life and not being fully replaced by equivalent capital investment. Interest and financing costs were $37,746 more than the comparable six month period in 2005, primarily as a result of the shares issued in accordance with the promissory note program and an increase in the prime interest rate to which the program is also tied. Although the losses decreased in the second quarter over the results of the first quarter, net loss for the six months ended August 31, 2006, increased $37,257 to a loss of $227,415 from a loss of $190,158 in 2005. RES-Q-VAC The RES-Q-VAC(R) Emergency Airway Suction System, is a lightweight, portable, hand-operated suction device that removes fluids from a patient's airway by attaching the RES-Q-VAC pump to various proprietary sterile and non-sterile single-use catheters sized for adult and pediatric suctioning. The one-hand operation makes it extremely effective and the product is generally found in emergency vehicles, hospitals and wherever portable aspiration is a necessity, including backup support for powered suction systems. The disposable features of the RES-Q-VAC reduce the risk of contaminating the technician from HIV or SARS when suctioning a patient or during post treatment cleanup. All of the parts that connect to the pump are disposable. A critical component and advantage of the RES-Q-VAC is the Full Stop Protection(R) filter a recently patented filtering system that both prevents leakage and over-flow of the aspirated fluids, even at full capacity, and traps all air and fluid borne pathogens and potentially infectious materials within the sealable container. This protects users from potential exposure to disease and contamination. The Full Stop Protection filter meets the requirement of the Occupational Safety and Health Administration as described below. The Company has received a letter from OSHA confirming that the RES-Q-VAC with the Full Stop Protection falls under the engineering controls of the Bloodborne Pathogen regulation and that the Products use would fulfill the regulatory requirements. OSHA 29CFR 1910.1030 - Occupational Exposure to Bloodborne Pathogens requires that employers of "...emergency medical technicians, paramedics, and other emergency medical service providers; fire fighters, law enforcement personnel, and correctional officers... must consider and implement devices that are appropriate [to contain bloodborne pathogens], commercially available and effective." These first responders risk exposure to serious disease, and the employers may risk OSHA violations and lawsuits if they fail to consider protective measures such as Repro-Med's Full Stop Protection for RES-Q-VAC. The Company has received a letter from OSHA indicating the RES-Q-VAC meets the intent of this regulation. On April 29, 2003, the Centers for Disease Control issued additional guidelines for the control of SARS (Sudden Acute Respiratory Syndrome) which requires all suction systems to have filtration equivalent to a HEPA filter to prevent the spread of this disease. At the current time, we believe that the RES-Q-VAC with Full Stop Protection is the only portable device to comply with the CDC directives. 10 We have also added new sturdier connectors to our pediatric catheters, which allow them to connect directly to the adult containers with Full Stop Protection. These connectors allow pediatric suctioning with the benefit of the Full Stop Protection device as well as with sterile catheters. These improved features come at a lower cost for the user, and a more compact kit for easier transport. Many infants are born with contagious diseases and the new system eliminates this concern among paramedics during an emergency delivery. The adult large bore yankuer is also fitted with an improved connector, for easier changeability and convenience. We have begun upgrading our RES-Q-VAC distribution channels by selecting key distributors to work with as master distribution outlets. The domestic emergency medical market has softened due to a decrease in Federal reimbursement to state and city regional areas. We have concluded that we can have more effective market penetration with major master distributors who will have much greater sales volume and be able to better support our products. We consolidated international RES-Q-VAC distribution, as well as our single point distribution in the UK. We are now providing direct support to our UK favored partners such as 24 hour deliver in the local currency. We also have master distribution in Norway, Sweden, Denmark, Iceland, Finland, Estonia, Latvia, and Lithuania. We are working towards single-point distribution in each country, where possible. We believe that one main distributor will be more predisposed to advertising, promotion, and building the product franchise in each market. In return, we will be able work more closely with the distributors and be able to hold them accountable for the sales in each region. We have begun major sales efforts into the hospital market for the RES-Q-VAC. The features of Full Stop Protection to meet OSHA requirements, sterile catheters, and the ability of RES-Q-VAC to work during extended power outages, have created a receptive market, especially in regions which recently have had major power outages, such as Florida with last years hurricanes and the blackout in the Northeast. Patients on ventilators, tracheotomy patients, elderly with swallowing disorders, stroke, heart attack, choke victims--all may need prompt effective suctioning wherever they are and for whom RES-Q-VAC may be life saving. This includes locations such as dining rooms, recreations areas, transportation and outdoor activities, among others. Currently the bulk of the Company's RES-Q-VAC sales, which represent approximately 40% of the Company's quarterly revenue, are to emergency rescue service companies. Over the course of the past few months, RMS has refocused its selling efforts on the hospital market, directly introducing the Res-Q-Vac product to over 35 hospitals, including three world class thought leading institutions that have accepted the Product as their emergency back-up standard. RMS has also entered into agreements with geographically strategic distributors to hospital markets, to increase the Company's reach. Entry into the hospital market is in its early stages, but as is evidenced by the initial response, RMS believes this will be a strong contributor to the growth of the Company. In the first quarter we retained a marketing and sales consulting group to assist the Company in its sales efforts. We have been rebuilding our distribution network and have begun an aggressive sales effort for the RES-Q-VAC into the hospital market as we continued our direct mail and telephone marketing program to introduce RES-Q-VAC to the nursing home market and now the hospital market. We also conducted discussions with nursing home chains, hospitals and distributors in this market. We plan to continue the mail and telemarketing campaign to the greatest extent possible with our resources. 11 We are focusing our greatest efforts to introduce the RES-Q-VAC into specific areas of hospitals, including crash carts, respiratory therapy and other departments. The non-battery, non-electric feature of the RES-Q-VAC appeals to hospitals which wish to reduce or avoid the costs associated with maintaining battery operated equipment in reliable, working order. FREEDOM60 The FREEDOM60(R) Syringe Infusion Pump is designed for ambulatory medication infusions. Ambulatory infusion pumps are most prevalent in the home care market. Other potential applications for the FREEDOM60 are pain control, the infusion of specialized drugs such as IgG, and chemotherapy. The home infusion therapy market is comprised of approximately 4,500 sites of service, including local and national organizations, hospital-affiliated organizations, and national home infusion organizations, and produces approximately $4.5 Billion in revenue annually (Ref: www.nhianet.org). With insurance reimbursement in a severe decline, there is a tremendous need for a low-cost, effective alternative to electronic and expensive disposable IV administration devices for the home care and nursing home market. The FREEDOM60 provides a high-quality delivery to the patient at costs similar to gravity and is targeted for the home health care industry, patient emergency transportation, and for any time a low-cost infusion is required. For the home care patient, FREEDOM60 is an easy-to-use lightweight mechanical pump using a 60cc syringe, completely portable, cost effective and maintenance free, with no batteries to replace and no cumbersome IV pole. For the infusion professional, FREEDOM60 delivers precise infusion rates and uniform flow profiles providing consistent transfer of medication. A Form 510(k) Premarket Notification for initial design of the FREEDOM60 as a Class II device was approved by the FDA in May 1994. The Company also markets the FREEDOM60-FM, an enhanced version of the FREEDOM60 which contains an electronic flow monitor system that provides occlusion and end of infusion alarm. This product is directed at nursing homes, hospitals and pediatric ambulatory applications where alarms are generally required for nursing acceptance. Nurses also appreciate being able to visualize the drug volume by reading the scale on the syringe. We have expanded the use of the FREEDOM60 to cover most antibiotics including the widely used and somewhat difficult to administer vancomycin. We have also found a following for FREEDOM60 for use in treating thalissemia with the drug desferal. In Europe we experienced success in using the FREEDOM60 for pain control, specifically post-operative epidural pain administration. Our European market also uses the FREEDOM60 for chemotherapy. We believe there is a new market for the FREEDOM60 for use in Primary Immune Deficiency, injecting immune globulin (IgG) under the skin as a subcutaneous administration, as is evidenced by the large growth in the Company's sales of this product. This method has provided patients with vastly improved quality of life with much fewer unpleasant side effects over the traditional intravenous route. The FREEDOM60 is an ideal system for this administration since the patient is able to self-medicate at home, the pump is easily configured for this application, and the FREEDOM60 is the lowest cost infusion system available in a heavily cost constrained market. 12 Historically the Company has marketed the Freedom60 directly and through specialty distributors. Increased market recognition for this product, and new subcutaneous medical applications of Immune Globulin treatments create a large opportunity for this Product. RMS is aggressively pursuing the home care, hospital and "closed-door" pharmacy markets dedicated to treatments using intravenous administration, to use the Freedom60 for the application of their therapies. The annual market size for infusion therapy is over $500 million for home care and over $1.5 billion for hospitals, once again not including additional logical market segments, many of which parallel the Res-Q-Vac markets, such as emergency and military. TRADE SHOWS May 1st-3rd, 2006, we exhibited the RES-Q-VAC at the ASPAN show in Orlando, FL where we introduced the RES-Q-VAC into the hospital market through the American Society of Perianesthesia Nurses. In June we exhibited at Ambex in the United Kingdom for the RES-Q-VAC in support of our network of distributors in the British Isles. Our Director of International sales, working at one of our favored UK distributor's booth had the opportunity to meet with many RES-Q-VAC users as well as other international distributors. We have structured a depot in the UK to better support our sales and marketing into the UK and throughout Europe. We have begun to further explore new markets in the UK such as hospitals, nursing homes, veterinary, and dental. The Company believes trade shows are important and intends to continue to attend those shows that relate to its major market horizontals and distribution networks. LIQUIDITY AND CAPITAL RESOURCES - In June of 2006 Company entered into a loan agreement with a director the proceeds of which were used to repay the $198,553 bank loan from M&T Bank. In raising capital beginning in February 2004, the Company issued promissory notes in the total amount of $432,000. These five year promissory notes pay 2% over prime plus four shares of common stock per year for every year the loan is in place. The loans are due on March 30, 2009. To attract marketing and operational assistance the Company retained a business management company, which, in addition to a monthly fee and success fee also included the right to earn warrants to acquire 10% of Repro-Med common stock, exercisable at $.10 share. Such warrants vest based in three stages upon meeting monthly revenue targets of $250,000, $325,000 and $400,000. The Company entered into an agreement with the management company regarding payment of accrued consulting charges totaling $50,000. The Company has issued a Promissory Note evidencing this agreement. The Note, due April 30, 2008, carries a 6% annual interest rate and grants the Holder the right to participate, at the Holders option, in any debt or equity offering made by the Company prior to repayment, with the right to apply the Note to such participation. Our efforts to enter new markets and expand existing sales channels are capital-intensive. Access to capital markets for these efforts has been important in the past, and will continue to be vital as we seek to fully implement our marketing plans and work toward achieving a positive cash-flow position. We continue to pursue capital investment through debt or equity to increase our marketing and sales efforts, and to enhance our existing products and add to product lines. 13 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is neither a party to any material litigation, nor to the knowledge of the officers and directors of the Company, is there any other material litigation threatened against the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company during the quarter ended August 31, 2006. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits (a) 31.1 Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K None 14 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized. REPRO-MED SYSTEMS, INC. /s/ Andrew I. Sealfon October 13, 2006 --------------------- Andrew I. Sealfon, President, Treasurer, Chairman of the Board, Director, and Chief Executive Officer 15