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, 2002
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-KSB
or any amendment to this Form 10-KSB. [ X ]

Based on the closing sales price of February 28, 2002, the aggregate
market value of the voting and nonvoting common equity held by non-affiliates of
the registrant was $1,029,300.

The number of issued outstanding of the registrant's common stock, $.01
par value was 23,504,000 at February 28, 2002 which includes 2,275,000 shares of
Treasury Stock.

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 .................................... 10
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... 11
Item 7. Financial Statements ................................... 17
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures ................... 30

PART III

Item 9. Directors, Executive Officers, Promoters and Control
Persons: Compliance With Section 16(a) of the
Exchange Act ........................................... 31
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 ....................... 35

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. Historically, contract manufacturing
was a strong source of revenue, but the Company is transitioning away from this
market in order to concentrate on our own proprietary devices. Male infertility
and impotency treatments were the first markets entered in the early 1980's. Our
presence in this market has decreased due to a shift in focus towards the
RES-Q-VAC and FREEDOM60. The Company is seeking outside funding to introduce a
couples sexual enhancement or dysfunction kit into this market. Gyneco, the
gynecological instrument subsidiary, was acquired in 1986 and sales continue
primarily through repeat business.

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

2002 2001
% of Sales % of sales
---------- ----------
Infusion Therapy 12 % 7 %
Emergency Medical 63 % 55 %
Contract Manufacturing 16 % 27 %
Gynecological Instruments 9 % 10 %
Male Impotency Treatments Less than 1 % 1 %

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. Research and Development
efforts for our new products have been temporarily suspended for some and
continue at a reduced rate for others. The Company will focus more efforts on
the Research and Development front once funds become available through increased
funds or outside financing.

3

AMBULATORY INFUSION SYSTEMS

The FREEDOM60 Syringe Infusion Pump was designed for ambulatory infusions.
Ambulatory infusion pumps are most prevalent in the home care market. The home
infusion therapy market is comprised of 4,500 sites of service, including local
and national organizations, hospital-affiliated organizations, and national home
infusion organizations with 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 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.

During 2001, 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 are pursuing adding other hospitals in the system prior to the
agreement expiration.

During August 2001, we began a trial of the FREEDOM60 at one location of a major
national home healthcare agency. We received our first order, as a result of the
successful trial, in September 2001. Since then we have added two more sites and
have 4 trials in progress. We will be working diligently to begin trials at the
remaining locations within the next six to twelve months.

As a direct result of our sales efforts at the Medica Trade Show in Dusseldorf,
Germany, the Company authorized an Italian distributor to obtain the CE Mark to
market the FREEDOM60 in Europe. We have been advised that the distributor has
obtained the CE Mark and at the end of February we shipped product to Italy for
distribution and trial.

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.

4

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.

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 1,600 Freedom60 pumps
currently in use. We sold approximately 720 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.

5

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.

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 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 extreme cold. Laerdal 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 China. 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 FULL STOP
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 full stop 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
substantially improved protection for these users.

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.

6

The PLUS line is not very profitable for Repro-Med so management has decided to
liquidate inventory on hand to discontinue this line.

RES-Q-VAC and PLUS are sold domestically and internationally by emergency
medical device distributors. These distributors generally advertise these
products in their catalogs.

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

Historically, we have used OEM profits to partially fund internal product
development that has resulted in RES-Q-VAC and FREEDOM60. OEM sales have been as
high as 70% of sales (1996). In 2002 and 2001, contract manufacturing for one
customer amounted to 16% and for two customers 27% of sales, respectively. In
late 1998, one customer substantially reduced marketing support for its product
and consequently requested postponement of shipments. We have been manufacturing
a portable, hand-operated suction pump for sale to the remaining active customer
but have been informed that the demand for this product has diminished. As a
result, the Company is transitioning from these contracts to building and
selling its own proprietary products due to the much-improved margins associated
with directly marketed devices.

7

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
repeat business. Male impotency treatment products are marketed primarily
through the web site and a limited number of distributors of personal care
items.

We signed a group purchasing agreement 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. The agreement will expire in
December 2002 along with the substantially low prices that these centers are
receiving. We are actively pursuing the addition of more of these centers so
that they may institute the product at their center and enjoy the low prices for
several months before the agreement expires.

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. We are still open to outside distributors but we have no
assurance that they will be able to produce and at what sales levels they will
be able to produce.

MANUFACTURING AND EMPLOYEES

Electromechanical assembly, calibration, pre- and post-assembly quality control
inspection and testing, and final packaging for all products are performed at
the facility by the 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
and might temporarily limit supply if we determine it is advisable to seek
alternate sources of supply for existing products. Our policy has been to have
multiple vendors as suppliers, where practicable, that also offer mold-building
capabilities as a service.

In February 2002, we employed 25 employees, 20 were assigned to manufacturing
operations, 3 to administrative functions, 1 Vice President of Operations
(responsible for manufacturing, warehouse and procurement operations), 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.

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.

8

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

Periodically we are subject to inspections and audits by FDA inspectors. During
the year ended February 28,2002, we were subject to an audit that was triggered
by a recall. The FDA issued the Company a 483 at the end of the audit, which we
responded to, and the FDA accepted the response. The FDA will verify our
accepted response on their next inspection, which could occur at any time. As a
result of FDA audits, the Company may be subject to further audits and may be
impacted by adverse findings.

PATENTS AND TRADEMARKS

We have filed and received U.S. protection for many of our products and in some
cases, where it was no longer deemed economically beneficial, we have allowed
certain patent protections to lapse. The RES-Q-VAC, an emergency medical
product, is susceptible in the international market to imitation. A competitor
has introduced a competitive product to the RES-Q-VAC into the market within the
last year. We have responded with the introduction of new innovative features
for the RES-Q-VAC that enhances the product and places it steps above the
competition in safety.

On April 10, 2001, we submitted a patent application for our new Full Stop
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.

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.

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.

9

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 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 $40,614 for the year ended February 28, 2002.
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, 2002.

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, 2002, 23,504,000 shares were issued and outstanding and there
were approximately 1,160 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.

10


Year Ended February 28, 2001: High Bid Low Bid
----------------------------- -------- -------
1st Quarter ................ $ 0.280 $ 0.280
2nd Quarter ................ $ 0.490 $ 0.450
3rd Quarter ................ $ 0.160 $ 0.160
4th Quarter ................ $ 0.180 $ 0.150

Year Ended February 28, 2002
----------------------------
1st Quarter ................ $ 0.260 $ 0.150
2nd Quarter ................ $ 0.230 $ 0.110
3rd Quarter ................ $ 0.230 $ 0.110
4th Quarter ................ $ 0.140 $ 0.070

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 $.38.

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, 2002, dividend payments on the Convertible
Preferred Stock amounted to $8,000 and an additional $4,000 were accrued on the
balance sheet.

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.

11

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

2002 vs. 2001

For the year ended February 28 , 2002 we showed a loss of $386,075 as compared
to a loss for the previous year of $104,457. This decline was mainly a result of
a decrease in total net sales for the year ended February 28,2002 due to a
reduction in sales for less profitable products.

Sales of our key products have significantly increased this year. Sales of the
Freedom60 Syringe Infusion System increased by 37% over the prior year and sales
of our RES-Q-VAC Airway Suction System increased by 13% over the prior year.
These sales increases were offset by the elimination of low margin products and
recognition of an OEM sale, which resulted in overall sales this year decreasing
16% to $1,758,904 for 2002 from $2,085,912 for 2001. Without the OEM sale
recognized during fiscal year 2001, net sales would have decreased by only 4%
overall as a result of the elimination of low margin products offset by
significant increases in our key products.

The company has recently added a new Full Stop Protector to the RES-Q-VAC, which
protects the users from any contamination from overflow and traps all pathogens
inside the suction container. This new feature is also a requirement of the
Occupational Safety and Health Administration under OSHA 29CFR 1910.1030 -
Occupational Exposure to

Bloodborne Pathogens. The RES-Q-VAC is the only hand-held non-electric suction
system with sterile catheters for infants, large catheters for adults, and meets
the intent of the OSHA requirements with the Full Stop Protection device. The
Company has recently received a letter from OSHA confirming that the Full Stop
Protector falls under the engineering controls of the Bloodborne Pathogen
regulation and therefore would be required by any employer of medical personnel
to protect their employees from potentially infectious materials.

In August 2001, we received our first military order for the RES-Q-VAC from one
base location of the US Air Force. We received several small orders from other
bases during the last half of the year for RES-Q-VAC under their existing
AFMLO/VA contract. The company anticipates additional orders will be placed
during Fiscal year 2003.

Management is seeking funds to design a new improved RES-Q-VAC suction device to
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.

12

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 new pump sales and restocking orders for disposables
are received. Furthermore, we are negotiating with a national distributor, which
would additionally improve sales potential for the line.

In September 2001, the Company began selling to a major national home care
agency that anticipates expanding the use of the FREEDOM60 to its regional
centers across the country. Currently three centers of the agency are using the
FREEDOM60 and four others are on trials. We anticipate starting trials in the
remaining centers within the next six to twelve months. We have also begun sales
into Europe with an Italian master distributor who arranged for CE approval of
the FREEDOM60.

Gross profit decreased to 25% of net sales for the year ended February 28,2002
from 38% for the year ended February 28,2001 primarily as a result of the timing
of the recognition of an OEM sale during the year ended February 28,2001. When
excluding this OEM sale for the year ended February 28,2001, the current gross
profit percentage is indicative of our current core business.

Selling, General & Administrative Expenses (SG&A) decreased year over year 2%
primarily as a result of a reduction in administrative personnel.

Research and development increased 14% to $40,835 from $35,843 as a result of
the use of outside engineering personnel during the year and for final
developments on the Full Stop Protection device for the RES-Q-VAC.

Net loss increased 270% to $386,075 for the year ended February 28,2002 from
$104,457 for the year ended February 28,2001, primarily as a result of the
decrease in net sales for the year ended February 28,2002.

For the year ending February 28, 2002, one customer's, Timm Medical, sales were
16% of the total sales. Management has been informed that Timm Medical has
sufficient inventory on hand to cover sales through September and that future
orders will be at a significantly reduced rate. As a result management has
decided to shift Company focus to its own proprietary products and markets.

LIQUIDITY AND CAPITAL RESOURCES

At the end of fiscal year 2002, we had net working capital of $183,120 a
decrease of $348,225 from the previous year.

During June 2000, we negotiated a $200,000 line of credit with M&T Bank that is
guaranteed by the President and one of the directors. As of February 28,2002,
$200,000 has been advanced on the line of credit. In accordance with the
agreement the line of credit was to be renewed or paid off by June 30, 2001. We
have received a verbal continuance from the bank through June 30,2002.

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.

13

We maintained our operations during Fiscal Year 2002 by borrowing approximately
200,000 from outside sources. We are attempting to achieve positive cash flow by
continuing to increase sales for the FREEDOM60 and RES-Q-VAC, decreasing
material costs and by pursuing capital investment through debt or equity. The
Company is working with outside distributors to increase market share in the
European markets for the RES-Q-VAC, and to introduce the FREEDOM60 into the
European market. We are in the process of validating new lower-cost and more
efficient vendors for our raw materials, which will assist us in improving our
margins on our current products. Sales of our key products increased
significantly for the first quarter ended May 31,2002 versus the prior year
first quarter ended May 31,2001. Sales of the Freedom60 Syringe Infusion System
increased by 31% over the prior year and sales of our RES-Q-VAC Airway Suction
System increased by 37% over the prior year. Total sales for the first quarter
ended May 31,2002 were the same as the first quarter ended May 31,2001 despite
the loss in sales of $81,000 from a major OEM customer for the first quarter
2002 and reduced sales for a low margin product line that we have been phasing
out over the last year.

Accounts Receivable decreased at February 28, 2002 to $190,938 as compared to
$207,588 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 and net 45 days to allow for increased delays due to
transportation and communications. As of February 28, 2002, 69% of Accounts
Receivable were current, 25% were at 30-59 days and 6% were over 60 days.

Prepaid expenses and other receivables decreased $26,680 from $39,587 to
$12,907.

Capital expenditures in 2002 were $80,927 as compared to $73,060 in 2001. We
purchased tooling and a new phone system through outside leasing programs. Other
assets decreased $1,012.

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 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 $40,614 for the year ended February 28, 2002.
Our monthly rent is $10,000 for the first 10 years of the lease and $11,042
thereafter.

14

SUBSEQUENT EVENTS

NEW BOARD OF DIRECTOR MEMBERS

During March 2002, the Board agreed to elect two new Board members; Joseph
Drohan and David Florman.

Mr. Drohan is the President and Co-Founder of Healthwave, Inc. , healthcare
technology and services company, located in Long Island, New York. He held
several positions with the North Shore Long Island Jewish Health System and has
been a Director for various health organizations.

Mr. Florman is currently employed by Empire Blue Cross Blue Shield of New York
as the Senior Vice President of Medical Delivery and Medicare Risk. He has held
various positions with Aetna US Healthcare, Inc. as well.

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.
Resuscitator 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.

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.

15

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 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. The Company is gathering further information and
home care user testimonials. Once we have secured sufficient testimonials we
will reapply.

16

Item 7. Financial Statements

Index to Financial Statements and Supplementary Data

Page
----

Report of Independent Certified Public Accountants ................ 18

Financial Statements:
Balance Sheet, February 28, 2002 .................................. 19

Statements of Income, For the Years Ended
February 28, 2002 & February 28, 2001 ........................... 20

Statements of Changes in Stockholders' Equity,
For the Years Ended February 28, 2002 and February 28, 2001 ..... 21

Statements of Cash Flows, For the Years Ended
February 28, 2002 & February 28, 2001 ........................... 22

Notes to Financial Statements ..................................... 23



17
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, 2002 and the related statements of operations;
stockholders' equity and cash flow for each of the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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, 2002 and the results of their operations and their cash
flows for each of the two years then ended, in conformity with accounting
principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has suffered from
recurring losses from operations, including net losses of $386,075 and $104,457
for the years ended February 28,2002 and 2001, respectively. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.


/s/ Radin, Glass & Co., LLP

New York, NY
April 15, 2002

18
Repro-Med Systems, Inc.
Balance Sheet

ASSETS February 28, 2002
- ------ -----------------
CURRENT ASSETS
Cash ......................................................... $ 25,670
Accounts Receivable, net ..................................... 190,938
Inventory .................................................... 600,635
Prepaid Expenses & Other Receivables ......................... 12,907
------
TOTAL CURRENT ASSETS ............................................. 830,150
-------

EQUIPMENT & OTHER ASSETS
Equipment-net ................................................ 467,985
Other Assets ................................................. 49,064
Deposits ..................................................... 52,000
TOTAL EQUIPMENT & OTHER ASSETS ................................... 569,049
-------

TOTAL ASSETS ..................................................... $ 1,399,199
===========

LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES
Accounts Payable ............................................. $ 189,111
Demand Loan from President ................................... 69,000
Bank Line of Credit Payable .................................. 200,000
Accrued Expenses ............................................. 144,792
Current Portion of Capital Gain .............................. 22,481
Current Portion of Leases Payable ............................ 21,646
------
Total Current Liabilities ........................................ 647,030

Deferred Capital Gain ....................................... 359,695
Long Term Leases Payable ......................................... 55,098
------
TOTAL LIABILITIES ................................................ 1,061,823
---------

COMMITMENTS AND CONTINGENCIES .................................... 0
-
STOCKHOLDERS' EQUITY
Preferred Stock, 8% Cumulative $.01
Par Value Authorized 2,000,000 Issued &
Outstanding 10,000 Shares (liquidation value $100,000) ....... 100
Common Stock, $.01 Par Value,
Authorized 50,000,000 Shares, Issued &
Outstanding 23,504, 000
Respectively ................................................. 235,040
Additional Paid-in Capital ................................... 2,211,631
Accumulated Deficit .......................................... (1,967,395)
Treasury Stock at Cost ....................................... (142,000)
--------
TOTAL STOCKHOLDERS' EQUITY ....................................... 337,376
-------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ......................... $ 1,399,199
===========

*See accompanying notes to consolidated financial statements

19
Repro-Med Systems, Inc.
Statements of Operations
For The Years Ended

February 28, February 28,
2002 2001
---- ----
Sales
Net Sales of Products ...................... $ 1,758,904 $ 2,085,912
Costs and Expenses:
Cost of Goods Sold ......................... 1,330,960 1,286,475
Selling, General & Administrative .......... 635,530 647,974
Research & Development ..................... 40,835 35,843
Depreciation & Amortization ................ 84,839 84,971
Equity Based Compensation .................. 41,000 133,000
------ -------
Total Costs And Expenses ..................... 2,133,164 2,188,263


Net Operating Loss ........................... (374,260) (102,351)

Non-Operating Income (Expense)
Interest Expense ........................... (20,252) (5,483)
Interest & Other Income .................... 9,009 3,377
----- -----
Total Non-Operating Income (Expense) ........ (11,243) (2,106)
------- ------

(Loss) before Taxes ........................ (385,503) (104,457)
(Provision) Benefit for Income Taxes ....... (572) 0
---- -
Net (Loss)
(386,075) (104,457)

Preferred Dividend ........................... (12,000) (8,000)
------- ------

Net (Loss) Available to
Common Shareholders .......................... ($ 398,075) ($ 112,457)
============ ============

Weighted average number of shares outstanding
Basic ...................................... 23,504,000 23,354,000
Diluted .................................... 23,504,000 23,354,000



(Loss) Per Common Share
Basic- ..................................... ($ 0.02) ($ 0.00)
Diluted .................................... ($ 0.02) ($ 0.00)

*See accompanying notes to consolidated financial statements

20
Repro-Med Systems, Inc.
Statement of Changes in Stockholders' Equity
For the Years Ended February 28, 2002 & February 28, 2001