10KSB: Optional form for annual and transition reports of small business issuers [Section 13 or 15(d), not S-B Item 405]

FORM 10-KSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 28, 2001
-----------------
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
--------------

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered

Common stock, $.01 Par Value Over the Counter Bulletin Board

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

Indicate by check mark if the disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B, is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form 10-K
or any amendment to this Form 10-KSB. [X]

Based on the closing sales price of February 28, 2001, the aggregate
market value of the voting and nonvoting common equity held by non-affiliates of
the registrant was $1,658,060.

The number of issued outstanding of the registrant's common stock, $.01
par value was 23,504,000 at February 28, 2001.


1

Repro-Med Systems, Inc.

Table of Contents


PART I Page

Item 1. Business 3
Item 2. Description of Property 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10

PART II

Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters 11
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7. Financial Statements 17
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 31

PART III

Item 9. Directors, Executive Officers, Promoters and Control
Persons: Compliance With Section 16(a) of the
Exchange Act 32
Item 10. Executive Compensation 32
Item 11. Security Ownership of Certain Beneficial Owners
and Management 33
Item 12. Certain Relationships and Related Transactions 35

PART IV

Item 13. Exhibits and Reports on Form 8-K 36


2

PART I
Item 1. Business

The Company

Repro-Med Systems, Inc. went public in 1982 (OTC - symbol REPR). We
design and manufacture medical devices directing resources to the global markets
for emergency medical products and infusion therapy. We maintain a presence in
the US markets for impotency treatments and gynecological instruments. These
products are regulated by the FDA.

Repro-Med Systems, Inc. was incorporated under the laws of the State
of New York, March 1980. The corporate offices are located at 24 Carpenter Road,
Chester, New York 10918. The telephone number is 845-469-2042, fax is
845-469-5518 and the Internet site is www.repro-med.com

Products

The primary growth strategy is to develop unique, proprietary medical
devices. These devices are intended to save money for the user and create a
repetitive demand for replacement of the disposable component - "razor - blade
model". This strategy led to our development of products for the ambulatory
infusion systems and emergency medical equipment markets. Contract manufacturing
sales continue to be a source of revenue for us. Male infertility and impotency
treatments were the first markets entered in the early 1980's and we continue to
maintain a presence. Gyneco, the gynecological instruments subsidiary, was
acquired in 1986 and sales continue primarily through telemarketing techniques.

The table below presents the product mix for the last two fiscal years.

2001 2000
% of Sales % of sales

Infusion Therapy 7 % 6 %
Emergency Medical 55 % 57 %
Contract Manufacturing 27 % 24 %
Gynecological Instruments 10 % 11 %
Male Impotency Treatments 1 % 2 %


We have also been developing other new proprietary medical devices,
which would be viewed as state-of-the-art and as fixed asset devices. These
products include a device for female incontinence and a device that can be used
to detect certain cancers non-invasively using special imaging techniques. Thus,
we have products currently on the market, new short-term products about to be
marketed, and long range products to support and enhance future growth.

Ambulatory Infusion Systems

The FREEDOM60 Syringe Infusion Pump was designed for ambulatory
infusions. Ambulatory infusion pumps are most prevalent in the home care market.
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.


3

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 acting on a 60cc syringe, completely portable, cost effective
and maintenance free--no batteries to replace, 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.

Last year we developed a new version of the pump called the
FREEDOM60-FM containing an electronic flow monitor system (occlusion and end of
infusion alarm) which has opened excellent marketing avenues in 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 signed a group purchasing agreement in December 1999 with Child
Health Corporation of America (CHCA) for the FREEDOM60 Syringe Infusion System.
CHCA is a cooperative and business alliance of 38 children's hospitals and home
care facilities which represents $4.5 billion in annual revenues, has over
61,000 hospital employees and 19,000 pediatricians and pediatric specialists.
The agreement calls for CHCA to assist us to market the FREEDOM60 to its members
through December 2002. Currently eight of the hospitals are actively using the
system, and we expect additional hospitals to enjoy the benefits of the
FREEDOM60's performance and low-cost.

Repro-Med Systems' objective is to build a product franchise with
FREEDOM60 and the sale of patented disposable tubing sets. FREEDOM60 uses
rate-controlled tubing with standard slide clamp and luer-lock connector. The
patented syringe disc connector insures that only FREEDOM60 tubing sets sold by
us will function within the pump. Non-conforming tubing sets, without the
patented disc connector, are ejected from the pump and prevent an overdose or
runaway pump from injuring the patient.

The Market for Pumps & Disposables

The ambulatory market has been rapidly changing due to reimbursement
issues. Insurance reimbursement has been drastically reduced providing
opportunity for FREEDOM60. The market share of high-end electronic type delivery
systems is on the decline as well as high-cost disposable non-electric devices.
Market pressures have forced patients to go on low-cost gravity systems or 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. FREEDOM60-FM addresses the
largest market segments with the lowest cost alarm syringe pump system.

4
The chart below summarizes the market trends of devices.



Method of Market
Administration Trend
----------------- --------------
Ambulatory Pump Flat/Declining
Gravity Infusion Increasing
Pole Mounted Pump Declining
Elastomeric Declining
Syringe Increasing
Implant Increasing
IV Push Increasing

Economic Benefits of FREEDOM60 Disposable Sales

At the moment we estimate that there are approximately 1,200 Freedom60
pumps currently in use. We sold approximately 500 pumps during the past fiscal
year. The Freedom60 pump is designed for a minimum use of 4,000 cycles which at
our list price is amortized at a low $.05 per use. The tubing sets currently
have a list price of $3.30. From past experience, we have noted that each pump
is used an average of 12 times per month. If the pump is operated up to 4 times
per day, the total use per month would be 48, and thus the pump life expectancy
is anticipated to be over six and a half years. This monthly rate amounts to
annual usage of 144 sets producing typical gross revenues to the distributor of
$475 per pump. Installed bases for various levels of pumps produce the following
sales:

Pumps In Annual Sales
Market of Disposables
----------------- -------------------
5000 $2,376,000
10000 $4,752,000
50000 $23,760,000
100000 $47,520,000

We have a combination of direct sales and sales through distributors.
Distributors typically receive discounts from list price depending upon
servicing and volumes of up to 35%.


Competition for the FREEDOM60

FREEDOM60 competes in the United States infusion pump market based on
price, service and product performance. Some of the competitors have
significantly greater resources for research and development, manufacturing and
marketing, and as a result may be better prepared to compete for market share
even in areas in which FREEDOM60 products may be superior. The industry is
subject to technological changes and there can be no assurance that we will be
able to maintain any existing technological lead long enough to establish our
products and to sustain profitability.


5

The number of competitors and products distributed in the two market segments in
which we participate are listed below.

# of # of
Companies Products
--------- --------
Ambulatory Infusion Pumps 12 50
Syringe Infusion Pumps 9 1

Source: "Infusion" Volume 5, Number 9, June 1999, published by the National Home
Infusion Association

Emergency Medical Products

Emergency medical products consists of two lines; RES-Q-VAC hand
powered emergency suction pump and PLUS Reusable Silicone Resuscitators.

RES-Q-VAC provides a complete emergency suction system for neonates,
children and adults for use in any location, as it is non-electric. RES-Q-VAC
removes fluids from a patient's airway. RES-Q-VAC consists of a hand-held,
portable suction pump that can be connected to various sized sterile or
non-sterile catheters. The one-hand operation makes it extremely effective
particularly in emergencies. The disposable features of the RES-Q-VAC reduce the
risk of contaminating the technician, for example, from HIV when suctioning a
patient or during post treatment cleanup. All the parts that connect to the pump
are disposable. RES-Q-VAC was introduced in 1990 and is now sold in thirty-one
countries. The product is generally found in emergency vehicles, hospitals and
as backup support for powered suction systems.

The RES-Q-VAC is currently the market leader for manual, portable
suction instruments. The primary competition is the V-Vac from Laederal. 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 extreme cold. Laederal had
more resources than Repro-Med Systems and had begun marketing the V-Vac before
RES-Q-VAC entered the market. The RES-Q-VAC, however, has proven to be
significantly superior and dominates the market to date. Every market leader can
expect competition and recently Ambu has entered the market with the Res-Cue
brand pump, a product similar to RES-Q-VAC, made in Taiwan. Management believes
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. With additional
capital, management believes it will continue to maintain and build market share
with an improved RES-Q-VAC (discussed below) and gain a significant portion of
the electric suction pump market with the introduction of the RES-Q-VAC Plus
system currently under development.

On April 10, 2001, we submitted a patent application for our new Stop
Flow Protector. This upgrade to the RES-Q-VAC system prevents any fluids from
exiting the system. It also serves to trap airborne and fluid pathogens. We
believe that the addition of the flow block design substantially separates the
RES-Q-VAC from competitive units, which tend to leak fluid when becoming full or
could pass air born pathogens during use. There is a heightened concern from
health care professionals concerning exposure to disease and the new RES-Q-VAC
provides improved protection for these users.

PLUS Reusable Silicone Resuscitators are used to replace or assist
normal breathing in patients suffering from respiratory arrest or, especially in
the home, as a backup for ventilator assisted patients. PLUS was introduced and
positioned as a companion product to RES-Q-VAC in September 1998. PLUS is also
found in emergency vehicles and in hospitals.

6

PLUS line consists of four models covering adult, child and infant
sizes that fit all patients. The product features include mask, patient valve,
relief valve, silicone bag, inlet valve and reservoir; and, meets national and
international standards for safety and performance set by FDA, ASTM, and ISO.

PLUS is imported fully assembled and is tested, packaged and
distributed from Chester, NY. We have initiated and filed the Form 510(k) for
PLUS with the FDA. Consequently, we are responsible for all compliance and
reporting for PLUS with the FDA.

RES-Q-VAC and PLUS are sold domestically and internationally by
emergency medical device distributors. These distributors generally advertise
these products in their catalogs. We also manufacture and private label
RES-Q-VAC under agreements requiring certain levels of sales performance.

Impotency Treatments

We market the RESTORE Kit for the treatment of impotency. RESTORE uses
vacuum therapy to naturally induce blood flow to enable an erection. The kit
includes Pro-Long constriction rings that make it possible to trap the blood and
maintain the erection.

The US market for impotency treatments is estimated at 30 million men.
Pfizer reports that Viagra will not work for 30%-40% of impotent men.
Consequently, the potential market for the RESTORE Kit in the US is
approximately 10 million men. We have been compelled by limited resources to
rely heavily on the web site to generate interest and sales for the RESTORE Kit.

Gynecological Instruments

We purchased the Gyneco product line in 1986. Products included the
Masterson Endometrial Biopsy Kit for in-office biopsy sampling procedures and
the Thermal Cautery System used for tubal ligation procedures.

Masterson Endometrial Biopsy Kit is a self-contained unit that offers a
quick and easy procedure for in-office tissue sampling. The powerful vacuum pump
is easily operated with one hand. The pump is supplied with sterile disposable
curettes and specimen containers presented in a kit.

The Thermal Cautery System is designed to provide a safe, reliable and
effective method of female sterilization. The unit is small, compact and
portable. A rechargeable battery supplies power. The unit uses disposable
components that include the cautery hook assembly, cannula and Trocar stylette.

Contract Manufacturing

We have used OEM profits to partially fund internal product development
that has resulted in RES-Q-VAC and FREEDOM60. Historically, OEM sales have been
as high as 70% of sales (1996). In 2001 and 2000, contract manufacturing for two
customers amounted to 27% and 24% of sales, respectively. In late 1998, one
customer substantially reduced marketing support for its product and
consequently requested postponement of shipments. We continue to manufacture a
portable, hand-operated suction pump for sale to the remaining active customers
and have received non-binding purchase orders through the second fiscal quarter.
There are no current contractual commitments with these customers.

7

We do not fund a defined marketing effort to solicit
contract-manufacturing business, but do respond to request for bids and quotes.
Consequently, OEM sales continue on a reduced level as we are committed to the
development and sale of our proprietary products.

Sales and Distribution

Distribution channels for the products are those generally common to
their respective markets. Emergency medical products are sold through a wide
network of domestic and international distributors in 31 overseas countries.
Ambulatory infusion systems are sold through both direct sales efforts
concentrated on large national accounts and a network of medical device
distributors. Gynecological instruments are sold from the corporate offices
primarily through telemarketing efforts. Male impotency treatment products are
marketed primarily through the web site and a limited number of distributors of
personal care items.

We executed an exclusive global distribution agreement in July 1999 for
the sale of FREEDOM60 products. As it became evident that specific minimum
performance targets would not be achieved, that agreement was terminated in
December 1999.

We signed a group purchasing agreement in December 1999 that
facilitates sales presentations to approximately 38 allied members of the Child
Health Corporation of America. Currently 8 of the members are using our
products. We will be actively pursuing sales from the other members in the next
year, through our developing sales team.

During the past year, we signed agreements with other distribution
groups for various marketing efforts of our different products, but these proved
not to be fruitful and the Company has decided to take a more active role in the
sales and marketing process.

On January 1, 2001, we began a targeted effort to develop a national
sales presence using selected manufacturer's representatives. We hired a Vice
President of Sales and Marketing with extensive experience in the post acute
health care market to develop this sales team. We presently have five contracted
and trained salespersons in the field in several key metropolitan areas. We are
continuing to identify, recruit and train qualified sales professionals to fully
develop the sales team. Our goal is to maintain a dedicated national sales force
of 24 representatives in strategic locations across the country. To the extent
funding is available, we are planning to support this team with a telemarketing
department, multi-media advertising, and full exposure at national professional
meetings and conferences.

Manufacturing and Employees

Electromechanical assembly, calibration, pre- and post-assembly quality
control inspection and testing, and final packaging for all products have been
performed historically at the facility by employees. Products are assembled
using molded plastic parts acquired from one supplier located in Taipei, Taiwan
and several U.S. vendors. The availability of parts has not been a problem. The
cost and time required to fabricate molds to manufacture parts can slow the
development of new products. Our policy has been to have multiple vendors as
suppliers that also offer mold building capabilities as a service.

8
In February 2001, we employed 24 employees, 17 were assigned to
manufacturing operations, 4 to administrative functions, 1 Vice President of
Operations (responsible for manufacturing, warehouse and procurement
operations), 1 Vice President of Sales and Marketing (responsible for
developing, maintaining and increasing the sales and marketing program) and 1
Executive Officer (Andrew Sealfon). The Company is dependent on the services of
Andrew Sealfon who serves as President and the head of Research and Development
and is also instrumental in marketing and finance. The Company does not have
insurance on the life of Andrew Sealfon and may not be able to replace him if
the need arose.

Regulations Governing the Manufacturing Operations

The Food, Drug and Cosmetic Act governs the development and
manufacturing of all medical products. The Act requires us to register the
facility, list devices, file notice of intent to market new products, track the
locations of certain products and to report any incidents of death or serious
injury relating to the products with the FDA. We are subject to civil and
criminal penalties and/or recall seizure or injunctions if we fail to comply
with regulations of the FDA.

Beginning on May 21,2001, we are undergoing an FDA audit as a result of
which we intend to modify our sterilization procedures that may result in a
temporary disruption in our deliveries of sterile products. We make every effort
to fully comply with all FDA regulations.

The most recent Form 510(k) filings with the FDA were for the
resuscitator and the vacuum erection device and constriction rings, both
approved in 1998.

We are required to comply with federal, state and local environmental
laws; however, there is no significant effect of compliance on capital
expenditures, earnings or competitive position. We do not use significant
amounts of hazardous materials in the assembly of these products.

Patents and Trademarks

We have filed and received U.S. protection for many of our products and
in some cases, where it was no longer deemed economically beneficial, we have
allowed certain patent protections to lapse. The RES-Q-VAC, an emergency medical
product, is susceptible in the international market to imitation. We have been
made aware that a competitor is in the process of introducing a competitive
product to the RES-Q-VAC. We are responding with the introduction of new
innovative features for the RES-Q-VAC, which enhances the product and makes it
more competitive.

On April 10, 2001, we submitted a patent application for our new Stop Flow
Protector. This addition to the RES-Q-VAC system prevents any fluids from
exiting the system. It also serves to trap airborne and fluid pathogens. We
believe that the addition of the flow block design substantially separates the
RES-Q-VAC from competitive units, which tend to leak fluid when becoming full or
could pass air born pathogens during use. There is a heightened concern from
health care professionals concerning exposure to disease and the new RES-Q-VAC
provides improved protection for these users.


9

The most recent patent granted to us was # 5,336,189 for a "Combination
IV Pump & Disposable Syringe" which confers a unique syringe to IV pump
interface design. This patent is for the FREEDOM60 Infusion System, an infusion
therapy product. The cost of filing and maintaining applications has deterred
pursuing international patents.

The patent position of small companies is highly uncertain and involves
complex legal and factual questions. Consequently, there can be no assurance
that patent applications relating to products or technology will result in
patents being granted or that, if issued, the patents will afford protection
against competitors with similar technology. Furthermore, some patent licenses
held may be terminated upon the occurrence of certain events or become
non-exclusive after a specified period. There can be no assurance that we will
have the financial resources necessary to enforce any patent rights we may hold.

Our product names are registered trademarks. There can be no assurance
that patents or trademarks will provide competitive advantages for the products
covered or that they will not be challenged or circumvented by competitors.

Item 2. Description of Property

In February 1999, we executed a sale-leaseback for our masonry and
steel frame building erected on 3.27 acres of land located at 24 Carpenter Road,
Chester, New York 10918. The facility is the only location and is used for our
headquarters and manufacturing operations.

Under terms of the contract of sale, we have the option to re-purchase
the building, beginning on the second anniversary of the sale and ending on the
eighth anniversary. We are required to give 12 months prior notice of the intent
to re-purchase the building. The agreed upon amount for re-purchase is as
follows:

Year Three $2,100,000 Year Four $2,205,000
Year Five $2,315,250 Year Six $2,431,013
Year Seven $2,552,563

The property is currently subject to a 20-year lease. We are
responsible for repairs, maintenance and upkeep of the space we occupy. The
terms of the lease call for monthly lease payments of $10,000 per month and 65%
of the annual property taxes that amounted to $44,988 for the year ended
February 28, 2001. Our monthly rent is $10,000 for the first 10 years of the
lease and $11,042 thereafter.

Item 3. Legal Proceedings

We are not a party to any material litigation, nor to the knowledge of
the officers and directors, is there any material litigation threatened against
us.


Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the
fiscal year ended February 28, 2001.

10
PART II

Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters

We are authorized to issue 50,000,000 shares of Common Stock, $.01 par
value. As of February 28, 2001, 23,504,000 shares were issued and outstanding
and there were approximately 1,185 holders of record.

Our Common Stock is traded in the over-the-counter market and is quoted
through the National Daily Quotation Service. The following table sets forth the
high and low closing bid quotations for the Common Stock as reported by the
National Quotation Bureau, Inc. for the periods indicated. These quotations
represent interdealer prices, without retail mark-up, markdown or commission and
may not represent actual transactions.

High Bid Low Bid
Year Ended February 29, 2000:
----------------------------

1st Quarter $0.063 $0.032
2nd Quarter $0.125 $0.040
3rd Quarter $0.098 $0.067
4th Quarter $0.560 $0.085

Year Ended February 28, 2001

1st Quarter $0.280 $0.280
2nd Quarter $0.490 $0.450
3rd Quarter $0.160 $0.160
4th Quarter $0.180 $0.150


On February 2, 1993 we issued 10,000 shares of 8% Cumulative
Convertible Preferred Stock in a private placement for $100,000. We are
obligated to pay semi-annual dividend payments of $4,000 until conversion by
shareholders or redemption by us. The 10,000 shares of Cumulative Convertible
Preferred Stock are convertible to 294,117 shares of Repro-Med common stock at
$0.36 per share. The 10,000 shares of Cumulative Convertible Preferred Stock are
convertible based on the following formula: multiply the number of shares of
Preferred Stock to be converted by $10.00, divide the result by the conversion
price of $0.20 per share (or by the conversion price as last adjusted and in
effect at the date any shares are surrendered for conversion). The Conversion
Price shall increase by $.02 for each year that the Preferred Stock is
outstanding. The current conversion price is $.36.

We have not declared or paid any cash dividends on our Common Stock and
do not anticipate that any dividends will be paid in the foreseeable future.
During the fiscal year ended February 28, 2001, dividend payments on the
Convertible Preferred Stock amounted to $4,000.

11

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------

This Annual Report on Form 10-KSB contains certain "forward-looking"
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) and information relating to us that are based on the beliefs of the
management, as well as assumptions made by and information currently available.
Our actual results may vary materially from the forward-looking statements made
in this report due to important factors such as, recent operating losses,
uncertainties associated with future operating results, unpredictability related
to Food and Drug Administration regulations, introduction of competitive
products, limited liquidity, reimbursement related risks, government regulation
of the home health care industry, success of the research and development
effort, 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 market place of
new and existing products, ability to penetrate new markets, our success in
enforcing and obtaining patents, obtaining required Government approvals and
attracting and maintaining key personnel that could cause the actual results to
differ materially. Repro-Med does not undertake any obligation to release
publicly any revision to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

RESULTS OF OPERATIONS

2001 vs. 2000

For the year ended February 28 , 2001 we showed a loss of $104,457 as
compared to a profit for the previous year of $250,300. This decline was mainly
a result of equity based compensation of $133,000 associated with the issuance
of stock and stock options for services rendered, during the year ended February
28 ,2001, coupled with the sale of a subsidiary, and a favorable debt settlement
of a line a credit for the year ended February 29, 2000.

Total net sales increased slightly to $2,085,912 from $2,065,400.
FREEDOM60 sales increased 17% to $146,111 from $125,021, RESTORE sales increased
111% to $64,360 from $30,483 and OEM sales increased 15% to $569,839 from
$493,378. Resusitator sales decreased 31% to $160,790 from $233,336, GYNECO
sales decreased 7% to $203,611 from $219,851 and RES-Q-VAC sales decreased a
slight 2% to $947,019 from $963,341. We expect sales to increase significantly
in the coming year and hired Robert Leichtman in January 2001 for the position
of Vice President of Sales & Marketing to lead us in our efforts. Mr. Leichtman
is an experienced salesman, trained by Johnson & Johnson, has a background in
the military, and has spent the last 15 years in the home care market.

12
Management is seeking funds to design a new improved RES-Q-VAC suction
device and expand the market substantially, although there is no assurance that
such funding can be obtained, or obtained at terms acceptable to us, or that if
funded, the markets would develop as expected. We are also planning to further
promote the RES-Q-VAC in the home care market, for which the RES-Q-VAC is
ideally suited due to its low cost, portability and convenience.

We have been marketing FREEDOM60 directly to national providers, other
distributors, and regional home care agencies. Sales of FREEDOM60 are expected
to continue to improve, as we are negotiating with a national distributor, which
would additionally improve sales potential for the line.

The RES-Q-VAC is under consideration by the U.S. Military for inclusion
in medical kits to respond to chemical or biological agents. We have met with
representatives of the armed forces to present and demonstrate the advantages of
the RES-Q-VAC System. Typically, the consideration and approval process for the
armed services is a long process, which we intend to continue until a decision
is rendered.

Cost of Goods Sold (COGS) decreased 2% to $1,106,972 from $1,125,552
due to improved manufacturing processes, aggressive purchasing, and other
production efficiencies.

Selling, General & Administrative Expenses (SG&A) decreased year over
year 18% primarily as a result of decreased payroll due to reductions in
management staff.

Research and development decreased 56% to $35,335 from $80,944. Factors
in this decrease were due to a salary reduction, the departure of a senior
engineer, and a planned decrease in new products until we experience an
improvement in available capital. We have placed development and research on
hold pending the infusion of new investment capital for such programs.

Net loss for operations decreased 57% to $102,351 from $237,337, which
was primarily the result of decreased payroll, decreased research & development
and a decrease in overall spending for the period.

Non-operating income decreased significantly to ($2,106) from $370,745
primarily resulting from the sale of the Gamogen subsidiary and the joint
venture for RESTORE in the previous year. The current year non-operating income
and expense consisted primarily of interest expense for the credit line and
equipment lease and interest and other income.

For the year ending February 28, 2001, there were two customers whose
combined sales were 27% of the total sales, Timm Medical and Mission Pharmacal.
Sales are expected to continue with Timm Medical, however, Mission has advised
us that they have reduced market support of their product and no additional
purchases are anticipated for the fiscal year ending 2002.

On August 3, 2000, we signed a national distribution agreement with a
national distributor for the FREEDOM60 Syringe Infusion System. This distributor
has experienced a change in their sales management and has not pursued marketing
our products.

13

On August 28, 2000, we were notified of an Indefinite Delivery,
Indefinite Quantity (IDIQ) Contract #RFP-797-FDF3-00-0089 awarded on August 25,
2000 by the AFMLO/VA Services Division. This material contract covers three of
the Company's patented products, RES-Q-VAC Manual Suction System, FREEDOM60
Syringe Infusion System and Masterson Endometrial Biopsy System, which are now
available to all government agencies. We continue in the process of contacting
the various branches of the government that have continued to express interest
in these products.

On September 29, 2000, we were notified that the U. S. Defense
Logistics Information Service in Battle Creek, MI had assigned National Stock
Numbers to our FREEDOM60 and RES-Q-VAC products and accessories. This now
facilitates orders from any U. S. military agency to be able to acquire our
products from a national military catalog listing.

On November 5th, 2000, the Health Care Financing Administration (HCFA)
had advised us that after the ninety day review process of our application, the
SADMERC and the four Durable Medical Equipment Regional Carriers DMERCs)
completed the HCPCS coding re-review and advised us that the correct billing
code for the RES-Q-VAC was E1399, a durable equipment miscellaneous
reimbursement code. Subsequently, three weeks later HCFA advised us that it was
rescinding the previous correspondence because we didn't prove the use of
RES-Q-VAC in a home setting. We are collecting home care user testimonials and
actively pursuing other actions to have our product become reimbursable by HCFA.

Liquidity and Capital Resources

At the end of fiscal year 2001, we had net working capital of $580,575
an increase of $56,230 from the previous year. We negotiated a settlement with a
lender that was remitted on October 29, 1999. As part of the agreement, we
signed a promissory note for $66,000 that becomes due through October 2002 only
upon the sale of either of our two major product lines. If neither of the two
product lines is sold, the note payable terminates.

During June 2000, we negotiated a $200,000 line of credit with Premier
Bank that is guaranteed by the President and one of the directors. The line of
credit is intended for tooling and material purchases for new orders. As of
February 28,2001, $70,000 has been advanced on the line of credit. We purchased
additional inventory and tooling during April and May 2001 and have been
advanced a total of $175,000 as of May 29,2001. In accordance with the agreement
the line of credit needs to be renewed or paid off by June 30, 2001.

During July 2000, we entered into a capital lease agreement with
Plasticweld for a catheter machine and tooling. The lease payments are $1,232
per month for 48 months. The value of the equipment is $44,435.

During the month of November, a consultant to the company improperly
forged checks to himself totaling approximately $6600. Our bank has decided not
to reimburse us for these forgeries and the loss was written off in the third
quarter.

We are currently operating at a neutral cash flow and have sufficient
capital for our ongoing needs, based on the anticipated continued sales growth
and maintaining careful control of expenses. We have demonstrated our ability to
control costs and believe we will be able to offset any unanticipated decreases

14

in revenues with additional reductions in overhead, materials, and labor. We are
actively pursuing capital investment to facilitate the development of our new
technology, as well as to begin an increase in production required to meet new
anticipated demand of our products. We are in the process of acquiring equipment
to begin in-house production of products, which have previously been acquired
through non-affiliated vendors. This equipment will open additional avenues of
opportunity for us to improve our margins on the current products as well as
becoming a source to generate additional revenue.

Accounts Receivable decreased at February 28, 2001 to $207,588 as
compared to $227,871 for the previous year. Domestic sales are made primarily on
net 30-day payment terms. A variety of terms continue to be employed for export
sales including cash prepayments, irrevocable letters of credit and net 45 days
to allow for increased delays due to transportation and communications. As of
February 28, 2001, 70% of Accounts Receivable were current, 26% were at 30-59
days and 4% were over 60 days.

Prepaid expenses and other receivables increased $6,070 from $45,517 to
$51,587.

Capital expenditures in 2001 were $73,060 as compared to $40,967 in
2000, mainly as a result of the acquisition of a catheter-producing machine to
decrease costs for this material. Other assets decreased $4,336.

We concluded the sale of our investment in Gamogen, Inc. on October 31,
1999 effective September 1, 1999. The proceeds from the transaction were
$263,579. The cost basis for the investment was $41,779. Consequently, the sale
resulted in the recognition of a gain of $221,800 that is reflected in the
Statement of Income as "Other Income" for the year ended February 29, 2000. As
part of the sale, we purchased income-producing assets and assumed certain
liabilities from Gamogen, Inc. and its subsidiary Gyneco, Inc. This purchase
resulted in our retaining control and obtaining sole ownership of the operations
of Gyneco, Inc. We anticipate savings in accounting and legal fees to meet the
reporting requirements associated with Gamogen, Inc. as well as improved
efficiencies internally that had been related to the additional bookkeeping and
clerical efforts.

In February 1999, we executed a sale-leaseback for our masonry and
steel frame building erected on 3.27 acres of land located at 24 Carpenter Road,
Chester, New York 10918. The facility is our only location and is used for our
headquarters and manufacturing operations.

Under terms of the contract of sale, we have the option to re-purchase
the building, beginning on the second anniversary of the sale and ending on the
eighth anniversary. We are required to give 12 months prior notice of the intent
to re-purchase the building. The agreed upon amount for re-purchase is as
follows:

Year Three $2,100,000 Year Four $2,205,000
Year Five $2,315,250 Year Six $2,431,013
Year Seven $2,552,563


The property is currently subject to a 20-year lease. We are
responsible for repairs, maintenance and upkeep of the space occupied. The terms
of the lease call for monthly lease payments of $10,000 per month and 65% of the
annual property taxes that amounted to $44,988 for the year ended February 28,

15
2001. Our monthly rent is $10,000 for the first 10 years of the lease and
$11,042 thereafter.


2000 vs. 1999

For the year ended February 29, 2000 we showed a profit of $250,300 as
compared to a loss for the previous year of $1,324,469. A combination of
improved sales, lower costs, the sale of a subsidiary, and a favorable debt
settlement of a line of credit created this improvement. We hired a Vice
President of Operations to further reduce manufacturing costs and bring certain
manufacturing processes in-house.

Total sales had increased 19.7% to $2,065,400 from $1,725,035 as a
result of increases in RES-Q-VAC sales which were up 16% to $963,341 in 2000
from $827,629 in 1999, Resuscitators had improved 239% to $233,336 from $68,842,
the FREEDOM60 product line also increased 78% to $125,021 from $70,284.
Impotency sales also increased in 2000 393% to $30,483 from $6,185, OEM sales
decreased slightly in 2000 8% from $536,532 to $493,378, and Gyneco sales, fully
consolidated, decreased slightly to $219,851 in 2000 from $220,538 in 1999.

RES-Q-VAC sales continued to improve in 2000 due to an aggressive sales
campaign that was designed to take advantage of the Year 2000 concerns for
reliable suction devices during potential power outages.

Sales of the FREEDOM60 Syringe Infusion System improved as well in
spite of the cancellation of the Exclusive Distribution Agreement with McKinley
Medical, which was terminated for failure to adequately market the products and
meet agreed payment terms. We had been marketing FREEDOM60 directly to national
providers, other distributors, and regional home care agencies.

Cost of Goods Sold (COGS) decreased 5% to $1,125,552 from $1,186,555 -
even with the increase in sales of 19.7% - due to improved manufacturing
processes, aggressive purchasing, and other production efficiencies.

Selling, General & Administrative Expenses (SG&A) decreased year over
year 17% primarily as a result of decreased payroll due to reductions in
management staff and a voluntary reduction in salary for Andrew Sealfon. This
decrease had been partially offset in YE 2000 by an increase in rent of $97,519
as a result of the sale-leaseback of the premises completed in 1999. Thus the
SG&A with the addition of rent were still reduced by 8% or $84,915 to $1,008,446
from $1,093,361 (see Page 10 - Sale-Leaseback).

Research and development decreased 56% to $80,994 from $185,637.
Factors in this decrease were due to a salary reduction, the departure of a
senior engineer, and a planned decrease in new products until there were
improvements in available capital. Development and research programs had been
placed on hold pending the infusion of new investment capital for such programs.

Net loss for operations decreased 72% to $237,337 from $862,314, as a
result of improved sales, improved efficiencies, and decreased payroll for the
period.

16
Non-operating income increased significantly to $370,745 from $40,576
primarily resulting from the sale of the Gamogen subsidiary and the joint
venture for RESTORE. The previous year's non-operating income primarily resulted
from interest and rental income offset by mortgage interest.

For the year ended February 29, 2000, there were two customers whose
combined sales were 24% of the total sales, Timm Medical and Mission Pharmacal.

There was no charge for an income tax provision for the year ended
February 29, 2000 as compared to a charge of $494,342 for the previous year.

Item 7. Financial Statements

Index to Consolidated Financial Statements and Supplementary Data

Page

Report of Independent Certified Public Accountants 18

Financial Statements:

Consolidated Balance Sheet, February 28, 2001 20

Consolidated Statements of Income, For the Years Ended

February 28, 2001 & February 29, 2000 21

Consolidated Statements of Changes in Stockholders' Equity,

For the Years Ended February 28, 2001 and February 29, 2000 22

Consolidated Statements of Cash Flows, For the Years Ended

February 28, 2001 & February 29, 2000 23

Notes to Consolidated Financial Statements 24



17

WEINGAST, ZUCKER & RUTTENBERG, LLP
CERTIFIED PUBLIC ACCOUNTANTS
11 HOLLAND AVENUE
WHITE PLAINS, NEW YORK 10603


INDEPENDENT AUDITORS' REPORT

BOARD OF DIRECTORS
REPRO-MED SYSTEMS, INC. AND SUBSIDIARY


We have audited the accompanying consolidated balance sheets of
Repro-Med Systems, Inc. and Subsidiary as of February 29, 2000 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended February 29, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Repro-Med Systems, Inc. and Subsidiary as of February 29, 2000 and the
consolidated results of their operations and their cash flows for the year then
ended February 29, 2000, in conformity with generally accepted accounting
principles.


/s/ Weingast, Zucker & Ruttenberg, LLP

White Plains, NY
May 25, 2000


18
RADIN, GLASS & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
360 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017


INDEPENDENT AUDITORS' REPORT

BOARD OF DIRECTORS
REPRO-MED SYSTEMS, INC.

We have audited the accompanying balance sheet of Repro-Med Systems,
Inc. as of February 28, 2001 and the related statement of income, stockholders'
equity and cash flow for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Repro-Med Systems,
Inc. as of February 28, 2001 and the results of their operation and their cash
flow for the year then ended, in conformity with accounting principles generally
accepted in the United States.


/s/ Radin, Glass & Co., LLP

New York, NY
April 17, 2001


19

Repro-Med Systems, Inc.
Consolidated Balance Sheet


ASSETS
CURRENT ASSETS February 28, 2001

Cash $ 35,466
Accounts Receivable, net 207,588
Inventory 586,866
Prepaid Expenses & Other Receivables 51,587
Deposits 40,000
------------
TOTAL CURRENT ASSETS 921,507

EQUIPMENT & OTHER ASSETS
Equipment-net 471,895
Other Assets 50,076
------------
TOTAL EQUIPMENT & OTHER ASSETS 521,971
------------

TOTAL ASSETS $ 1,443,478
============


LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES

Accounts Payable $ 102,137
Bank Line of Credit Payable 70,000
Accrued Expenses 132,435
Current Portion of Capital Gain 22,481
Current Portion of Leases Payable 11,109
Customer Deposits 2,770
------------
Total Current Liabilities 340,932

Deferred Capital Gain 382,175
Long Term Leases Payable 25,920
------------
TOTAL LIABILITIES 749,027
------------

COMMITMENTS AND CONTINGENCIES 0
------------

STOCKHOLDERS' EQUITY
Preferred Stock, 8% Cumulative $.01
Par Value Authorized 2,000,000 Issued &
Outstanding 10,000 Shares 100
Common Stock, $.01 Par Value,
Authorized 50,000,000 Shares, Issued &
Outstanding 23,504, 000 Respectively 235,040
Unearned Compensation (41,000)
Additional Paid-in Capital 2,211,631
Accumulated Deficit (1,569,320)
Treasury Stock at Cost (142,000)
------------
TOTAL STOCKHOLDERS' EQUITY 694,451
------------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,443,478
============
*See accompanying notes to consolidated financial statements


20