KORU Medical Systems, Inc. - Quarter Report: 2012 November (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2012

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission File Number: 0-12305

REPRO-MED SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


New York	13-3044880
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

24 Carpenter Road, Chester New York	10918
(Address of principal executive offices)	(Zip Code)

(845) 469-2042

(Registrant’s telephone number, including area code)

n/a

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


	Large accelerated filer [ ]	Accelerated filer [ ]

	Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

As of January 14, 2013, 36,661,667 shares of common stock, $.01 par value per share, were outstanding.

REPRO-MED SYSTEMS, INC.

TABLE OF CONTENTS


		PAGE

PART I – FINANCIAL INFORMATION

ITEM 1.	Financial Statements

	Balance Sheets – November 30, 2012 (Unaudited) and February 29, 2012	3

	Statements of Operations (Unaudited) - for the Three Months and Nine Months Ended November 30, 2012 and 2011	4

	Statements of Cash Flows (Unaudited) - for the Nine Months Ended November 30, 2012 and 2011	5

	Notes to Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7-11

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	11

ITEM 4.	Controls and Procedures	11

PART II – OTHER INFORMATION

ITEM 1.	Legal Proceedings	12

ITEM 1A.	Risk Factors	12

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12

ITEM 3.	Defaults Upon Senior Securities	12

ITEM 4.	Mine Safety Disclosures	12

ITEM 5.	Other Information	12

ITEM 6.	Exhibits	12

Page 2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

REPRO-MED SYSTEMS, INC.

BALANCE SHEETS


	November 30,			February 29,
	2012			2012
	Unaudited

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	1,682,341		$	1,757,223
Certificates of deposit		255,624			255,228
Accounts receivable less allowance for doubtful accounts of $23,706 and $17,718 for November 30, 2012 and February 29, 2012 respectively		1,187,961			884,727
Inventory		1,170,220			1,167,456
Prepaid expenses		115,046			188,902
Total Current Assets		4,411,192			4,253,536
PROPERTY & EQUIPMENT, net		912,162			498,940
OTHER ASSETS:
Patents, net of accumulated amortization of $110,956 and $107,640 at November 30, 2012 and February 29, 2012, respectively		22,197			24,513
Other assets		55,969			28,156
Total Other Assets		78,166			52,669
TOTAL ASSETS	$	5,401,520		$	4,805,145

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Note payable - current portion	$	2,008		$	2,077
Note payable to related parties - current portion		43,318			41,417
Deferred capital gain - current portion		22,481			22,481
Accounts payable		203,458			199,527
Accrued expenses		155,331			153,800
Accrued payroll and related taxes		32,883			41,551
Accrued tax liability		210,256			98,000
Total Current Liabilities		669,735			558,853
OTHER LIABILITIES:
Note payable - less current portion		—			1,474
Note payable to related parties - less current portion		405,102			437,832
Deferred capital gain less current portion		118,035			134,895
Deferred tax liability		121,363			121,363
Total Other Liabilities		644,500			695,564
TOTAL LIABILITIES		1,314,235			1,254,417
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, 50,000,000 shares authorized and 38,936,667 and 37,471,667 shares issued,; 36,661,667 and 35,196,667 shares outstanding at November 30, 2012 and February 29, 2012, respectively.		389,367			374,717
Additional paid-in capital		3,512,294			3,263,244
Retained earnings		551,274			54,767
		4,452,935			3,692,728
Less: Treasury stock, 2,275,000 shares at cost at November 30, 2012 and February 29, 2012		(142,000	)		(142,000	)
Less: Deferred compensation cost		(223,650	)		—
Total Stockholders’ Equity		4,087,285			3,550,728
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	5,401,520		$	4,805,145

The accompanying notes are an integral part of these Financial Statements

Page 3

REPRO-MED SYSTEMS, INC.

STATEMENTS OF OPERATIONS (UNAUDITED)


	For the Three Months Ended						For the Nine Months Ended
	November 30						November 30
	2012			2011			2012			2011

NET SALES	$	2,070,409		$	1,501,282		$	5,766,182		$	4,357,469

Cost and Expenses
Cost of goods sold		782,900			589,390			2,086,497			1,622,639
Selling, general and administrative		1,112,727			631,976			2,657,929			1,875,092
Research and development		36,062			26,606			111,452			49,302
Depreciation and amortization		51,329			27,113			134,799			73,391
Total Costs and Expenses		1,983,018			1,275,085			4,990,677			3,620,424

Net Operating Profit		87,391			226,197			775,505			737,045

Other Income/(Expenses)
Gain (Loss) Currency Exchange		1,465			1,238			(5,120	)		12,504
Interest Expense		(7,105	)		(8,200	)		(21,491	)		(24,099	)
Interest and Other Income		2,730			90,181			5,662			120,523
Total Other Income/(Expense)		(2,910	)		83,219			(20,949	)		108,928

NET PROFIT BEFORE TAXES		84,481			309,416			754,556			845,973

Provision for Income Taxes		(28,957	)		(127,169	)		(258,049	)		(347,694	)

Net Income	$	55,524		$	182,247		$	496,507		$	498,279

NET INCOME PER SHARE
Basic	$	0.00		$	0.00		$	0.01		$	0.01
Diluted	$	0.00		$	0.00		$	0.01		$	0.01
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		36,611,667			38,602,667			35,798,649			37,343,845
Diluted		36,661,667			38,698,821			35,831,717			38,446,984

The accompanying notes are an integral part of these Financial Statements

Page 4

REPRO-MED SYSTEMS, INC.

STATEMENTS OF CASH FLOWS (UNAUDITED)


	For the Nine Months Ended
	November 30,			November 30,
	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	496,507		$	498,279
Adjustments to reconcile net income to net cash from operating activities:
Amortization of deferred compensation cost		40,050			—
Depreciation and amortization		134,799			73,391
Deferred capital gain - building lease		(16,860	)		(16,860	)
Changes in operating assets and liabilities:
Increase in accounts receivable		(303,234	)		(164,257	)
Increase in inventory		(2,764	)		(393,726	)
Decrease (Increase) in prepaid expense		73,856			(29,811	)
Increase in other assets		(27,813	)		—
Decrease in deferred tax asset		—			80,799
Increase in accounts payable		3,931			151,638
(Decrease) Increase in accrued payroll and related taxes		(8,668	)		397
Increase in accrued expense		1,531			58,464
Increase in accrued tax liability		112,256			—
NET CASH PROVIDED BY OPERATING ACTIVITIES		503,591			258,314

CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment		(544,705	)		(203,407	)
Payments for patents		(1,000	)		—
Purchase of certificates of deposit		(396	)		(101,533	)
NET CASH USED IN INVESTING ACTIVITIES		(546,101	)		(304,940	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuing common stock		—			121,500
Payments to note payable to related parties		(30,829	)		(29,038	)
Payments on note payable		(1,543	)		(1,433	)
Excess tax benefits from share-based payment arrangements		—			198,951
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(32,372	)		289,980

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(74,882	)		243,354
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,757,223			1,322,250
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,682,341		$	1,565,604

Supplemental Information
Cash paid during the periods for:
Interest	$	21,491		$	24,099
Taxes	$	145,793		$	67,944
Non Cash Activities
Deferred compensation cost	$	263,700		$	—

The accompanying notes are an integral part of these Financial Statements

Page 5

REPRO-MED SYSTEMS, INC.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE NATURE OF OPERATIONS

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.

BASIS OF PRESENTATION

The accompanying unaudited financial statements as of November 30, 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 November 30, 2012 and the results of operations and cash flow for the three-month and nine month periods ended November 30, 2012 and 2011.

The results of operations for the three months and nine months ended November 30, 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.

EMPLOYEE STOCK AWARDS

In July 2012, 1,465,000 shares were authorized to issue to employees as share compensation valued at $0.18 per share, the market value on the date of the board authorization. The value of these shares will be amortized into operations over the one to two year restriction on the shares. Amortization amounted to $40,050 for the three-months ended November 30, 2012.

INVENTORIES

Our inventory includes $292,000 of certain subassemblies which did not meet our specifications and were rejected by us and returned to the vendor for correction or replacement.

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.

SUBSEQUENT EVENTS EVALUATION

The Company has evaluated subsequent events through January 14, 2013, the date on which the financial statements were issued.

EMERGING ACCOUNTING STANDARDS

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 financial reporting.

LEASED AIRCRAFT

The Company leases an aircraft from a Company controlled by the president. The lease payments aggregated were $5,375 for the three-months ended November 30, 2012 and 2011 and $16,125 for the nine months ended November 30, 2012 and November 30, 2011. The original lease agreement has expired and the Company is currently on a month-to-month basis for rental payments.

Page 6

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 NOVEMBER 30, 2012 VS. NOVEMBER 30, 2011

Net sales increased 37.9% overall from $1,501,282 in the quarter ended November 30, 2011 to $2,070,409 in the quarter ended November 30, 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 Safety 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.

Selling, General and Administrative costs increased 76.1% from $631,976 in 2011 to $1,112,727 in 2012. This increase is attributable to a one-time bonus paid to key personnel, the hiring of a professional purchasing manager, and a significant expansion of sales and marketing, as compared to 2011. We hired a Director of Sales & Marketing, and a Director of National Accounts to expand and solidify relationships with nationwide providers. We expanded our advertising and attended additional trade shows to reach new markets.

Net Operating Profit was $87,391 for the quarter ended November 30, 2012 as compared with $226,197 during the same period last year. The increase in net sales coupled with an improvement in the gross profit margin was offset by increased selling, general and administrative costs compared with 2011. In 2011, we also performed services for a third-party manufacturer that did not recur in 2012. Accordingly, net income decreased 69.5% from $182,247 for the quarter ended November 30, 2011 to $55,524 for the quarter ended November 30, 2012.

Cost of goods sold increased $193,510 or 32.8%, from $589,390 to $782,900 due to an increase in sales, an expanded production payroll to meet increased demand, and the addition of a cost differential for a night shift with related benefits. The gross profit margin increased this quarter to 62.2% compared to 60.7% from the same period in 2011.

Interest expense decreased by 13.4% to $7,105 in 2012 from $8,200 for the comparative quarter in 2011 as a result of lower interest payments on long-term debt.

Research and Development expenses increased $9,456 or 35.5% from $26,606 in 2011 to $36,062 primarily due to R & D expenses incurred on new product development associated with the RMS HIgH-Flo™ Subcutaneous Safety Needle Sets, and research on manufacturing improvements and other new products.

Depreciation and amortization expenses increased by $24,216 from $27,113 in 2011 to $51,329 in 2012 due to increased investment in capital equipment and ERP software.

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NINE MONTHS ENDED NOVEMBER 30, 2012 VS. NOVEMBER 30, 2011

Net sales increased 32.3% overall from $4,357,469 for the nine month period ended November 30, 2011 to $5,766,182 for the nine month period ended November 30, 2012. This was due in part to a substantial increase in sales of RMS HIgH-Flo™ Subcutaneous Safety Needle Sets, period over period. Available in Europe since late February, 2011, the new RMS HIgH-Flo™ Subcutaneous Safety 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.

Selling, General and Administrative costs increased 41.7% from $1,875,092 in 2011 to $2,657,929 in 2012. This increase is attributable to a one-time bonus paid to key personnel, the hiring of a professional purchasing manager, and a significant expansion of sales and marketing, as compared to 2011. We hired a Director of Sales & Marketing, and a Director of National Accounts to expand and solidify relationships with nationwide providers. We expanded our advertising and attended additional trade shows to reach new markets.

Net Operating Profit was $775,505 for the nine months ended November 30, 2012 as compared with $737,045 during the same period last year. This change is attributable to the increase in net sales coupled with an improvement in the gross profit margin, partially offset by an increase in sales, general and administrative costs. In 2011, we also performed services for a third-party manufacturer that did not recur in 2012. Accordingly, net income decreased .4% from $498,279 to $496,507.

Cost of goods sold increased $463,858, or 28.6%, from $1,622,639 to $2,086,497 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 increased for the nine month period ended November 30, 2012 to 63.8% compared to 62.8% from the same period in 2011.

Interest expense decreased by 10.8% to $21,491 in 2012 from $24,099 for the comparative nine-month period in 2011 as a result of lower interest payments on long-term debt.

Research and Development expenses increased $62,150 or 126.1% from $49,302 in 2011 to $111,452 primarily due to R & D expenses incurred on new product development associated with the RMS HIgH-Flo™ Subcutaneous Safety Needle Sets, and research on manufacturing improvements and other new products.

Depreciation and amortization expenses increased by $61,408 from $73,391 in 2011 to $134,799 in 2012 due to increased investment in capital equipment and ERP software.

LIQUIDITY AND CAPITAL RESOURCES

Net Cash provided from Operations was $503,591 for the nine months ended November 30, 2012 as compared with net cash provided by operations of $258,314 for the previous nine months ended November 30, 2011. This change is primarily due to increased sales revenues offset in part by increased SG&A costs, increases in accounts receivable, and increased purchases of property and equipment.

In August, 2012 we acquired a residence adjacent to our facility for use as additional office and R&D space. We continue to invest in new equipment and facility improvements to accommodate our sales growth.

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.

BRANDING AND RECOGNITION

We continue to enhance marketing efforts 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 three quarters of the fiscal year.

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FREEDOM60®

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-administer 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 thalassemia 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.

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.

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 that 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.

Page 9

COMPETITION FOR THE FREEDOM60®

Competition for the FREEDOM60® for IgG is consists mostly of electrically powered infusion devices that are more costly and can create high pressures during delivery that 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 that 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, accessories and disposables 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, among others.

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.

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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 RES-Q-VAC distributors.

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.

Not Applicable.

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 required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended November 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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 OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.


	31.1	Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act 2002

	31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act 2002

	32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 2002

	32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 2002

	101*	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”.

SIGNATURES

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.

January 14, 2013	/s/ Andrew I. Sealfon
	Andrew I. Sealfon, President, Chairman of the Board, Director, Principal Executive Officer

January 14, 2013	/s/ Michael R. Boscher
	Michael R. Boscher, Treasurer and Chief Financial Officer

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