UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended November 30, ~~2015~~2016

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

For the transition period from ________ to ________.

Commission File Number:0-12305

REPRO MED SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


New York	13-3044880
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

24 Carpenter Road, Chester, New York	10918
(Address of Principal Executive Offices)	(Zip Code)

(845) 469-2042

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):


	Large accelerated filer [ ]	Accelerated filer [ ]

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

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

As of January ~~8, 2016, 38,006,667~~5, 2017, 37,749,081 shares of common stock, $.01 par value per share, were outstanding, which excludes ~~2,340,625~~2,735,981 shares of ~~Treasury Stock.~~treasury stock.

REPRO MED SYSTEMS, INC.

TABLE OF CONTENTS


		PAGE

PART I– FINANCIAL INFORMATION

ITEM 1.	Financial Statements

	Balance Sheets as of November 30, ~~2015~~2016 (Unaudited) and February ~~28, 2015~~29, 2016	3

	Statements of Operations (Unaudited) for the Three Months and Nine ~~Months~~months Ended November 30, ~~2015,~~2016, and ~~2014~~2015	4

	Statements of Cash Flows (Unaudited) for the Nine ~~Months~~months Ended November 30, ~~2015,~~2016, and ~~2014~~2015	5

	Notes to Financial Statements	~~6-9~~6-11

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~10-16~~12-19

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	1619

ITEM 4.	Controls and Procedures	1619

PART II– OTHER INFORMATION

ITEM 1.	Legal Proceedings	17

~~ITEM 1A.~~	~~Risk Factors~~	1719-20

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17

~~ITEM 3.~~	~~Defaults Upon Senior Securities~~	17

~~ITEM 4.~~	~~Mine Safety Disclosures~~	18

~~ITEM 5.~~	~~Other Information~~	1820-21

ITEM 6.	Exhibits	1821

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

REPRO MED SYSTEMS, INC.

BALANCE SHEETS


	November 30,						November 30,
	2015			February 28,			2016			February 29,
	(Unaudited)			2015			(Unaudited)			2016
ASSETS
										��
CURRENT ASSETS
Cash and cash equivalents	$	3,339,531		$	2,557,235		$	3,440,160		$	4,201,949
Certificates of deposit		259,789			259,789			261,118			261,118
Accounts receivable less allowance for doubtful accounts of $31,455 and $29,865 for November 30, 2015 and February 28, 2015, respectively		1,757,961			1,623,695
Accounts receivable less allowance for doubtful accounts and returns of $20,519 at November 30, 2016 and $37,486 at February 29, 2016								1,661,214			1,350,180
Inventory		1,258,802			1,226,636			1,299,411			1,040,277
Prepaid expenses		290,383			240,688			456,934			265,123
TOTAL CURRENT ASSETS		6,906,466			5,908,043			7,118,837			7,118,647
Property and equipment, net		1,045,765			1,161,432			933,947			996,822
Patents, net of accumulated amortization of $143,762 and $134,552 at November 30, 2015 and February 28, 2015, respectively		210,264			180,558
Patents, net of accumulated amortization of $174,434 and $147,380 at November 30, 2016 and February 29, 2016, respectively								390,578			247,691
Other assets		31,140			31,140			31,490			31,140
TOTAL ASSETS	$	8,193,635		$	7,281,173		$	8,474,852		$	8,394,300

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Deferred capital gain - current portion	$	22,481		$	22,481		$	22,481		$	22,481
Accounts payable		522,338			243,217			910,763			307,764
Accrued expenses		434,117			304,041			582,998			499,406
Accrued payroll and related taxes								112,213			148,766
Accrued tax liability		43,424			—			—			129,497
Accrued payroll and related taxes		118,193			121,917
TOTAL CURRENT LIABILITIES		1,140,553			691,656			1,628,455			1,107,914
Deferred capital gain - less current portion		50,596			67,454			28,116			44,976
Deferred tax liability		231,544			248,607			82,196			123,111
TOTAL LIABILITIES		1,422,693			1,007,717		$	1,738,767		$	1,276,001

STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, 50,000,000 shares authorized, 40,347,292 shares issued; 38,006,667 shares outstanding		403,473			403,473
Common stock, $0.01 par value; authorized shares, 75,000,000 at November 30, 2016 and 50,000,000 at November 30, 2015; 40,485,062 shares issued at November 30, 2016 and 40,487,532 shares issued at February 29, 2016; 37,749,081 shares outstanding at November 30, 2016 and 37,966,501 shares outstanding at February 29, 2016								404,851			404,875
Additional paid-in capital		3,893,548			3,855,188			4,082,218			3,968,342
Retained earnings		2,675,202			2,237,076			2,599,736			3,019,940
		6,972,223			6,495,737			7,086,805			7,393,157
Less: Treasury stock, 2,340,625 shares at cost		(166,281	)		(166,281	)
Less: Treasury stock at cost, 2,735,981 shares at November 30, 2016 and 2,521,031 at February 29, 2016								(343,720	)		(246,858	)
Less: Deferred compensation cost		(35,000	)		(56,000	)		(7,000	)		(28,000	)
TOTAL STOCKHOLDERS’ EQUITY		6,770,942			6,273,456			6,736,085			7,118,299
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	8,193,635		$	7,281,173		$	8,474,852		$	8,394,300

The accompanying notes are an integral part of these financial statements

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REPRO MED SYSTEMS, INC.

STATEMENTS OF OPERATIONS (UNAUDITED)


	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended						For the Nine Months Ended
	November 30						November 30						November 30						November 30
	2015			2014			2015			2014			2016			2015			2016			2015

NET SALES	$	3,144,954		$	2,655,155		$	8,941,676		$	7,797,030		$	3,193,113		$	3,144,954		$	9,331,208		$	8,941,676
Cost of goods sold		1,035,675			1,075,158			3,307,808			3,054,246			1,129,170			1,035,675			3,375,862			3,307,808
Gross Profit		2,109,279			1,579,997			5,633,868			4,742,784			2,063,943			2,109,279			5,955,346			5,633,868

OPERATING EXPENSES
Selling, general and administrative		1,698,226			1,257,134			4,567,709			3,439,258			2,034,016			1,698,226			6,145,769			4,567,709
Research and development		51,564			116,885			143,940			406,705			59,142			51,564			183,497			143,940
Depreciation and amortization		69,274			71,544			204,087			202,224			83,254			69,274			227,109			204,087
Total Operating Expenses		1,819,064			1,445,563			4,915,736			4,048,187			2,176,412			1,819,064			6,556,375			4,915,736

Net Operating Profit		290,215			134,434			718,132			694,597
Net Operating (Loss)/Profit														(112,469	)		290,215			(601,029	)		718,132

Non-Operating Income/(Expense)
Non-Operating (Expense)/Income
Loss on currency exchange		(36,663)			(23,483	)		(42,420)			(33,198	)		(43,546	)		(36,663	)		(33,802	)		(42,420	)
Loss on disposal of fixed assets		(253)			—			(13,577)			—			—			(253	)		(1	)		(13,577	)
Interest expense		—			—			—			(512	)		(1,930	)		—			(1,886	)		—
Interest and other income		929			1,143			3,058			4,058			454			929			1,549			3,058
TOTAL OTHER INCOME (EXPENSES)		(35,987)			(22,340	)		(52,939	)		(29,652	)
TOTAL OTHER (EXPENSES) INCOME														(45,022	)		(35,987	)		(34,140	)		(52,939	)

INCOME BEFORE TAXES		254,228			112,094			665,193			664,945
(LOSS) INCOME BEFORE TAXES														(157,491	)		254,228			(635,169	)		665,193

Income Tax Expense		(86,676	)		(19,402	)		(227,067	)		(211,203	)
Income Tax Benefit (Expense)														53,216			(86,676	)		214,965			(227,067	)

NET INCOME	$	167,552		$	92,692		$	438,126		$	453,742
NET (LOSS) INCOME													$	(104,275	)	$	167,552		$	(420,204	)	$	438,126

NET INCOME PER SHARE
NET (LOSS)/INCOME PER SHARE

Basic	$	—		$	—		$	0.01		$	0.01		$	—		$	—		$	(0.01	)	$	0.01
Diluted	$	—		$	—		$	0.01		$	0.01		$	—		$	—		$	(0.01	)	$	0.01

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

Basic		38,006,667			38,081,667			38,006,667			37,499,849			37,746,731			38,006,667			37,857,074			38,006,667
Diluted		38,006,667			38,081,667			38,006,667			37,499,849			37,794,350			38,006,667			37,904,693			38,006,667

The accompanying notes are an integral part of these financial statements

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REPRO MED SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)


	For the Nine Months Ended						For the Nine Months Ended
	November 30,						November 30,
	2015			2014			2016			2015

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	438,126		$	453,742
Adjustments to reconcile net income to net cash provided by operating activities:
Net (Loss) Income							$	(420,204	)	$	438,126
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Amortization of deferred compensation cost		21,000			72,750			21,000			21,000
Stock based compensation expense		38,360			—			157,245			38,360
Depreciation and amortization		204,087			202,224			227,109			204,087
Deferred capital gain - building lease		(16,860	)		(16,860	)
Deferred capital gain - building lease								(16,860	)		(16,860	)
Deferred taxes								(40,914	)		(17,063	)
Loss on disposal of fixed assets		13,577			—			—			13,577
Provision for returns and doubtful accounts		(70)			—			(16,967	)		(70	)
Deferred taxes		(17,063	)		(24,701	)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(134,196	)		35,905
Increase in accounts receivable								(294,066	)		(134,196	)
Increase in inventory		(32,165	)		(752,373	)		(259,134	)		(32,165	)
(Increase) decrease in prepaid expense		(49,695	)		975
Increase in prepaid expense								(192,161	)		(49,695	)
Increase in accounts payable		279,122			431,920			602,998			279,122
Decrease in accrued payroll and related taxes		(3,724	)		(7,758	)		(36,553	)		(3,724	)
Increase in accrued expense		130,076			162,721			83,593			130,076
Increase (decrease) in accrued tax liability		43,424			(166,358	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		913,999			392,187
(Decrease) Increase in accrued tax liability								(129,497	)		43,424
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES								(314,411	)		913,999

CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment		(106,337	)		(552,060	)		(137,182	)		(106,337	)
Proceeds on disposal of fixed assets		13,550			—			—			13,550
Purchase of certificates of deposit		—			(880	)
Payments for patents		(38,916	)		(91,726	)		(169,941	)		(38,916	)
NET CASH USED IN INVESTING ACTIVITIES		(131,703	)		(644,666	)		(307,123	)		(131,703	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of securities, net of legal and other fees of $15,000		—			273,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		—			273,000
Purchase of Treasury Stock								(140,255	)		—
NET CASH USED IN FINANCING ACTIVITIES								(140,255	)		—

NET INCREASE IN CASH AND CASH EQUIVALENTS		782,296			20,521
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS								(761,789	)		782,296
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		2,557,235			2,227,398			4,201,949			2,557,235
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	3,339,531		$	2,247,919		$	3,440,160		$	3,339,531

Supplemental Information
Cash paid during the periods for:
Interest	$	—		$	512		$	—		$	—
Taxes	$	100,000		$	404,891		$	99,342		$	100,000

NON-CASH FINANCING AND INVESTING ACTIVITIES
Issuance of common stock as compensation	$	—		$	84,000		$	—		$	—

The accompanying notes are an integral part of these financial statements

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REPRO MED SYSTEMS, INC.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

REPRO MED SYSTEMS, INC. (the “Company”, “RMS”) designs, manufactures and markets proprietary medical devices primarily for the ambulatory infusion market and emergency medical ~~applications. The~~applications as governed by the United States Food and Drug Administration (the “FDA”) ~~regulates these products.~~quality and regulatory system and international standards for quality management systems. The Company operates as one segment.

BASIS OF PRESENTATION

The accompanying unaudited financial statements as of November 30, ~~2015,~~2016, have been prepared in accordance with generally accepted accounting principles and with instructions to SEC regulation S-X for interim financial statements.

In the opinion of the Company’s management, the financial statements contain all adjustments consisting of normal recurring accruals necessary to present fairly the Company’s financial position as of November 30, ~~2015,~~2016, and the results of operations and cash flow for the three month and nine month periods ended November 30, ~~2015,~~2016, and ~~2014.~~2015.

The results of operations for the three and nine months ended November 30, ~~2015,~~2016, and ~~2014~~2015 are not necessarily indicative of the results to be expected for the full year. These interim financial statements should be read in conjunction with the financial statements and notes thereto of the Company and management’s discussion and analysis of financial condition and results of operations included in the Company’s Annual Report for the year ended February ~~28, 2015,~~29, 2016, as filed with the Securities and Exchange Commission on Form 10-K.

USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Important estimates include but are not limited to, asset lives, valuation allowances, inventory, and accruals.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In ~~July 2015,~~December 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2015-11—Simplifying~~2016-19—Technical Corrections and Improvements which contains amendments that affect a wide variety of topics in the ~~Measurement of Inventory.~~Accounting Standards Codification (“ASC”). The ~~ASU was issued as part~~reason for each amendment is provided before each of the ~~FASB’s simplification initiative~~amendments for clarity and ~~under~~ease of understanding. The amendments generally fall into one of the ~~ASU, inventory is measured at~~following types of categories; (a) Amendments related to differences between original guidance and the ~~lower~~ASC: these amendments arose because of differences between original guidance (for example, FASB Statements, Emerging Issues Task Force (“EITF”) Issues, and so forth) and the ASC. These amendments principally carry forward pre-codification guidance or subsequent amendments into the ASC. Many times, either the writing style or phrasing of the original guidance did not directly translate into the ASC format and style. As a result, the meaning of the guidance might have been unintentionally altered. Alternatively, amendments in this category may relate to guidance that was codified without some text, reference, or phrasing that, upon review, was deemed important to the guidance; (b) Guidance clarification and reference corrections: these amendments provide clarification through updating wording, correcting references, or a combination of both. In most cases, the feedback suggested that, without these enhancements, guidance may be misapplied; (c) Simplification: these amendments streamline or simplify the ASC through minor structural changes to headings or minor editing of text to improve the usefulness and understandability of the ASC; or (d) Minor improvements: these amendments improve the guidance and are not expected to have a significant effect on current accounting practice or create a significant administrative cost and net realizable value, which would eliminate the other two options that currently exist for the market: (1) replacement cost and (2) net realizable value less an approximately normal profit margin. This ASU is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively.to most entities. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

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In June 2016, FASB issued ASU No. 2016-13—Financial Instruments – Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

In May 2016, FASB issued ASU No. 2016-12—Revenue from Contracts with Customers (Topic 606); Narrow-Scope Improvements and Practical Expedients, which is intended to not change the core principle of the guidance in Topic 606, but rather affect only the narrow aspects of Topic 606 by reducing the potential for diversity in practice at initial application and by reducing the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The effective date and transition requirements for the amendments in this update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by update 2014-09). The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

In May 2016, the FASB issued ASU No. 2016-11 Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815); Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 Emerging Issues Task Force (“EITF”) Meeting, which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, and Topic 932, Extractive Activities—Oil and Gas, effective upon adoption of Topic 606. The Company does not expect the adoption of the ASU to have any impact on its financial statements.

In May 2014, the FASB issued ASU No. 2014-09—Revenue from Contracts with Customers. The ASU clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”) that removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, provides more useful information to users of the financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The amendments in this update are effective for the annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Full or modified retrospective adoption is required and early application is not permitted. On July 9, 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606); Deferral of the Effective Date, which (a) delays the effective date of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), by one year to annual periods beginning after December 15, 2017 and (b) allows early adoption of the ASU by all entities as of the original effective date for public entities. In March 2016, the FASB issued ASU No. 2016-08 Revenue from Contracts with Customers (Topic 606); Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and the effective date is the same as the requirements in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10 Revenue from Contracts with Customers (Topic 606); Identifying Performance Obligations and Licensing, which is intended to clarify identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas and the effective date is the same as the requirements in ASU 2014-09. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

In March 2016, the FASB issued ASU No. 2016-09 — Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU was issued as part of the FASB’s simplification initiative and under the ASU, the areas of simplification in the update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classifications of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. The amendment eliminates the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. The amendment in this ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

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In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The main difference between the current requirement under GAAP and this ASU is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. This ASU requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. This is effective for annual and interim periods beginning after December 15, 2018 and early adoption is permitted. This ASU must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. We are currently assessing the potential impact of this ASU and expect it will not have a material impact on our financial condition and results of operations upon adoption.

In July 2015, the FASB issued ASU No. 2015-11—Simplifying the Measurement of Inventory. The ASU was issued as part of the FASB’s simplification initiative and under the ASU, inventory is measured at the lower of cost and net realizable value, which would eliminate the other two options that currently exist for the market: (1) replacement cost and (2) net realizable value less an approximately normal profit margin. This ASU is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively. The Company does not expect the adoption of the ASU to have any impact on its financial statements.

STOCK-BASED COMPENSATION

The Company maintains ~~various~~a long-term incentive stock benefit ~~plans~~plan under which it grants stock options and restricted stock ~~awards~~ to certain directors and key employees. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. All options are charged against income at their fair value. The entire compensation expense of the award is recognized over the vesting period. Shares of stock granted are recorded at the fair value of the shares at the grant date, over the vesting period.

RECLASSIFICATION

Certain reclassifications have been made to conform prior period data to the current presentation. These reclassifications had no effect on reported net income.

NOTE 2 RELATED PARTY TRANSACTIONS

On December 20, 2013, we executed an agreement effective March 1, 2014, with a Company director, Dr. Mark Baker, to provide clinical research and support services related to new and enhanced applications for the FREEDOM60® Syringe Infusion System. Authorized by the Board of Directors, the agreement provides for payment of 420,000 shares of common stock valued at $0.20 per share over a three-year period. Amortization amounted to $7,000 and $21,000 for the three and nine months ended November 30, 2016 and November 30, 2015, ~~and 2014,~~ respectively. ~~In August, 2014, Dr. Baker was paid a previously approved bonus of $25,000 to assist him in covering taxes due on the grant of common stock.~~

On October 21, 2015, Cyril Narishkin was appointed to the Board of Directors and Interim Chief Operating Officer of the Company. Also effective October 21, 2015, we entered into a consulting agreement with Mr. Narishkin, to support our expanded management team and accelerate our growth opportunities under his role of Interim Chief Operating Officer. The agreement ~~provides~~provided for payment of $16,000 per month for eight days per month, of which half was to be paid in cash and half was to be paid in shares of common stock. Effective January 1, 2016, the agreement provided for the same payment of $16,000 per month, of which ~~half is~~seventy-five percent was to be paid in cash and ~~half is~~twenty-five percent was to be paid in shares of common stock.

On ~~October 21, 2015,~~June 24, 2016, Cyril Narishkin executed a termination and general release agreement, which terminated his previous consulting agreement, and resigned as an officer and director for personal reasons. Mr. Narishkin will be compensated for services as a consultant through January 31, 2017 at a monthly rate of $16,000 per month for up to eight days of service a month upon request of the ~~Board~~Company. Mr. Narishkin was granted compensation of ~~Directors~~$48,000 and $198,000 for the three and nine months ended November 30, 2016, respectively. In accordance with the agreement, the Company repurchased 96,542 shares of common stock of the Company also approved independent director compensation of $25,000 each annually, to be paid quarterly half in cash and half in common stock, effective September 1, 2015. Independent directors include Dr. Mark Baker, Mr. Mark Pastreich, Mr. Arthur Radin and Mr. Cyril Narishkin. For purposes of director compensation,owned by Mr. Narishkin ~~will receive $25,000 annually in addition to his~~at an aggregate purchase price of $43,393.

- 8 -

LEASED AIRCRAFT

The Company leases an aircraft from a company controlled by Andrew Sealfon, the Company’s President and Chief Executive Officer. The lease payments ~~under his consulting agreement. As of~~were $5,375 and $16,125 for the three and nine months ended November 30, 2016 and November 30, 2015, ~~$12,500 was included in accrued expenses.~~respectively. The original lease agreement has expired and the Company is currently on a month-to-month basis for rental payments.

BUILDING LEASE

Mr. Mark Pastreich, a director, is a principal in the entity that owns the building leased by Company. The Company is in year ~~sixteen~~seventeen of a twenty-year lease. There have been no changes to lease terms since his directorship and none are expected through the life of the current lease.

~~LEASED AIRCRAFT~~

~~The Company leases an aircraft from~~ With a ~~company controlled by~~monthly lease amount of $11,042, the ~~president. The~~ lease payments ~~aggregated~~ were ~~$5,375~~$33,126 and ~~$16,125~~$99,378 for the three and nine months ended November 30, ~~2015, and 2014,~~2016 respectively. ~~The original lease agreement has expired and the Company is currently on a month-to-month basis for rental payments.~~

NOTE 3 PROPERTY AND EQUIPMENT

Property and equipment consists of the following at:

November 30, 2015

February 28, 2015

Land

$
54,030

$
54,030

Building

171,094

171,094

Furniture, office equipment, and leasehold improvements

932,049

887,959

Manufacturing equipment and tooling

966,223

963,843

2,123,396

2,076,926

Less: accumulated depreciation

1,077,631

915,494

Property and equipment, net

$
1,045,765

$
1,161,432

~~- 7 -~~


	November 30, 2016		February 29, 2016

Land	$	54,030	$	54,030
Building		171,094		171,094
Furniture, office equipment, and leasehold improvements		1,003,250		923,394
Manufacturing equipment and tooling		966,080		961,486
		2,194,454		2,110,004
Less: accumulated depreciation		1,260,507		1,113,182
Property and equipment, net	$	933,947	$	996,822

NOTE 4 LEGAL PROCEEDINGS

InOn September 20, 2013, the Company commenced in the United States District Court for the Eastern District of California a declaratory judgment action against competitor, EMED Technologies ~~Crop.~~Corp. (“EMED”) to establish the invalidity of one of EMED’s patents and non-infringement of the Company’s needle sets. EMED answered the complaint and asserted patent infringement and unfair business practice counterclaims. The Company responded by asserting its own unfair business practice claims against EMED. Both parties have requested injunctive relief and monetary damages. Discovery is ongoing.

On June 16, 2015, the Court issued what it termed a “narrow” preliminary injunction against the Company from making certain statements regarding some of EMED’s products. On June 23, 2016, EMED filed a motion seeking to have the Company held in contempt, claiming that certain language in the Company’s device labeling does not comply with the injunction. In response to a show cause order, the Company advised the Court that the language in the Company’s labeling that EMED challenged is language that the FDA directed the Company to use in its labeling. The Court discharged the show cause order, effectively rejecting EMED’s contempt argument.

On March 24, 2016, EMED filed a motion seeking a second preliminary injunction prohibiting RMS from selling three of its products in California. The Company opposed that motion on April 19, 2016. A decision on the motion is ~~complying with that order. Discovery is ongoing.~~still pending.

On June 25, 2015, EMED filed a claim of patent infringement for the second of its patents, also directed to the Company’s needle sets, in the United States District Court for the Eastern District of Texas. This second patent is related to the one concerning the Company’s declaratory judgment action. Given the close relationship between the two patents, the Company ~~has~~ requested that the Texas suit be transferred to California. ~~The Court has not yet ruled~~Also, based on a validity review of the ~~Company’s transfer request. Discovery~~patent in the U.S. Patent and Trademark Office (“USPTO”), discussed below, the Company requested the Texas suit ~~is ongoing.~~be stayed. On May 12, 2016, the Court entered an order staying the case until after the Patent Trial and Appeal Board at the USPTO issues a final written decision regarding the validity of the patent.

- 9 -

On September 11, 2015, the Company requested an ex parte reexamination of the patent in the first filed case, and on September 17, 2015 the Company requested an inter partes review (“IPR”) of the patent in the second filed case. On November 20, 2015, the ~~U.S. Patent and Trademark Office~~USPTO instituted the ex parte reexamination request having found a substantial new question of patentability concerning EMED’s patent in the first filed case. The ex parte reexamination is ongoing. A decision ~~whether~~ to institute the ~~inter partes review~~IPR for EMED’s patent in the second filed case was ordered by the USPTO on February 19, 2016 having determined a reasonable likelihood all claims of the patent may be found to be unpatentable. Oral argument for the IPR was held on November 22, 2016 and a final ruling is ~~expected within three (3) months.~~due on or before February 19, 2017.

Although the Company believes it has meritorious claims and defenses in these ~~litigations~~actions and proceedings, their outcomes cannot be predicted with any certainty. If any of these actions against the Company are successful, they could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.

NOTE 5 ~~STOCK~~STOCKHOLDERS’ EQUITY

On September 30, 2015, RMS’s Board of Directors authorized a stock repurchase program pursuant to which the Company ~~will~~has and expects to continue to make open market purchases of the Company’s outstanding common stock. The Board of Directors initially authorized such purchases up to 1,000,000 ~~shares~~shares. On June 29, 2016, the Board of Directors approved the ~~Company’s Outstanding Common Stock.~~amendment to the stock repurchase program increasing the authorized to be repurchased to 2,000,000 shares. The purchases will be made through a broker to be designated by the Company with price, timing and volume restrictions based on average daily trading volume, consistent with the safe harbor rules of the Securities and Exchange Commission (the “Commission”) for such repurchases.

As of November 30, ~~2015, the Company had not made any purchases under the program, and as of January 8,~~ 2016, the Company had repurchased ~~33,454~~395,356 shares at an average price of ~~$0.47~~$0.45 under the program.

NOTE 6 STOCK-BASED COMPENSATION

On September 30, 2015, the Board of Directors approved the 2015 Stock Option Plan (“the Plan”) authorizing the Company to grant stock option awards to certain officers, employees and consultants under the ~~plan at fair market value,~~Plan, subject to shareholder ~~approval.~~approval at the Annual Meeting of Shareholders held on September 6, 2016. The total number of shares of common stock of the Company, par value ~~$.01~~$0.01 per share (“Common Stock”), with respect to which awards may be granted pursuant to the Plan ~~shall~~was not to exceed 2,000,000 shares.

On June 29, 2016, the Board of Directors approved the amendment to the Plan authorizing the total number of shares of common stock authorized to be subject to awards granted under the Plan to be increased to 4,000,000 shares. On September 6, 2016, at the Annual Shareholder Meeting, the Company’s shareholders approved the Plan as amended.

As of November 30, ~~2015,~~2016, the Company had awarded ~~1.2 million~~905,000 options to certain executives and key employees under the ~~plan.~~

On October 21, 2015, the Board of Directors of the Company ~~also~~ approved ~~independent~~non-employee director compensation of $25,000 each annually, to be paid quarterly half in cash and half in common stock, ~~effective~~beginning September 1, 2015. For purposes of director compensation, Mr. Narishkin will receive $25,000 annually in addition to his payments under his consulting agreement. As of November 30, 2015, $12,500 was included in accrued expenses.

~~- 8 -~~

The per share weighted average fair value of stock options granted during the ~~three~~nine months ended November 30, ~~2015~~2016 and November 30, ~~2014~~2015 was ~~$0.19~~zero and ~~zero,~~$0.19, respectively. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the ~~three~~nine months ended November 30, ~~2015.~~2016. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued:


	Three Months Ended November 30,				November 30,
	2015		2014		2016		2015

Dividend yield		0.00%		—		0.00%		0.00%
Expected Volatility		59.00%		—		59.00%		59.00%
Weighted-average volatility		—		—		—		—
Expected dividends		—		—		—		—
Expected term (in years)		5 Years		—		5 Years		5 Years
Risk-free rate		2.17%		—		2.17%		2.17%

- 10 -

The following table summarizes the status of the ~~Company’s stock option plan:~~Plan:

Total stock-based compensation expense for stock option awards totaled ~~$10,717~~$101,337 and ~~zero~~$10,717 for the ~~three~~nine months ended November 30, ~~2015~~2016 and November 30, ~~2014,~~2015, respectively.

The weighted-average grant-date fair value of options granted during the ~~three~~nine months ended November 30, ~~2015~~2016 and November 30, ~~2014~~2015 was ~~$219,000 and~~ zero ~~respectively.~~for both periods. The total intrinsic value of options exercised during the ~~three~~nine months ended November 30, ~~2015~~2016 and November 30, ~~2014,~~2015, was zero for both periods.

The following table presents information pertaining to options outstanding at November 30, ~~2015:~~2016:

As of November 30, ~~2015,~~2016, there was ~~$0.2 million~~$35,958 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1917 months. The total fair value of shares vested during the ~~three~~nine months ended November 30, ~~2015~~2016 and November 30, ~~2014,~~2015, was $98,432 and zero, ~~for both periods.~~respectively.


Range of Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price		Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price

$0.36 - $0.38	1,155,000	5 years	$	0.37	—	$	—	905,000	5 years	$	0.37	—	$	—


	Three Months Ended November 30,				Change from Prior Year				% of Sales				Three Months Ended November 30,				Change from Prior Year				% of Sales
	2015		2014		$		%		2015		2014		2016		2015		$		%		2016	2015
Sales
Domestic	$	2,645,241	$	2,211,589	$	433,652	19.6	%	84.1	%	83.3	%	$	2,652,107	$	2,645,241	$	6,866	0.3	%	83.1%	84.1	%
International		499,713		443,566		56,147	12.7	%	15.9	%	16.7	%		541,006		499,713		41,293	8.3	%	16.9%	15.9	%
Total	$	3,144,954	$	2,655,155	$	489,799	18.4	%					$	3,193,113	$	3,144,954	$	48,159	1.5	%


	Three Months Ended November 30,						Change from Prior Year
	2015			2014			$		%		Three Months Ended November 30,						Change from Prior Year
											2016			2015			$			%
Gross Profit	$	2,109,279		$	1,579,997		$	529,282	33.5	%	$	2,063,943		$	2,109,279		$	(45,336	)	(2.1	)%
Stated as a Percentage of Net Sales		67.1	%		59.5	%						64.6	%		67.1	%


	Three Months Ended November 30,						Change from Prior Year
	2015			2014			$			%		Three Months Ended November 30,						Change from Prior Year
												2016			2015			$		%
Selling, general and administrative	$	1,698,226		$	1,257,134		$	441,092		35.1	%	$	2,034,016		$	1,698,226		$	335,790	19.8	%
Research and development		51,564			116,885			(65,321	)	(55.9	)%		59,142			51,564			7,578	14.7	%
	$	1,749,790		$	1,374,019		$	375,771		27.3	%	$	2,093,158		$	1,749,790		$	343,368	19.6	%
Stated as a Percentage of Net Sales		55.6	%		51.7	%							65.6	%		55.6	%


	Nine Months Ended November 30,				Change from Prior Year				% of Sales
	2015		2014		$		%		2015		2014
Sales
Domestic	$	7,396,597	$	6,478,690	$	917,907	14.2	%	82.7	%	83.1	%
International		1,545,049		1,318,340		226,709	17.2	%	17.3	%	16.9	%
Total	$	8,941,646	$	7,797,030	$	1,144,616	14.7	%


	November 30, 2015		February 28, 2015

Land	$	54,030	$	54,030
Building		171,094		171,094
Furniture, office equipment, and leasehold improvements		932,049		887,959
Manufacturing equipment and tooling		966,223		963,843
		2,123,396		2,076,926

Less: accumulated depreciation		1,077,631		915,494
Property and equipment, net	$	1,045,765	$	1,161,432


	Nine Months Ended November 30, 2015			Nine Months Ended November 30, 2014

Net cash provided by operating activities	$	913,999		$	392,187
Net cash used in investing activities		(131,703	)		(644,666	)
Net cash provided by financing activities		—			273,000


	Nine Months Ended November 30, 2016			Nine Months Ended November 30, 2015
Net cash (used in) provided by operating activities	$	(314,411	)	$	913,999
Net cash used in investing activities	$	(307,123	)	$	(131,703	)
Net cash used in financing activities	$	(140,255	)	$	—


Reconciliation of GAAP Net (Loss)/Income	Three Months Ended November 30						Nine Months Ended November 30
to Non-GAAP Normalized EBITDA:		2016			2015			2016			2015
GAAP Net (Loss)/Income	$	(104,275	)	$	167,552		$	(420,204	)	$	438,126
Tax (Benefit)/Expense		(53,216	)		86,676			(214,965	)		227,067
Depreciation		83,254			69,274			227,109			204,087
Professional Fees (1)		583,547			280,156			1,503,722			518,028
Non-GAAP Normalized EBITDA	$	509,310		$	603,658		$	1,095,662		$	1,387,308

Reconciliation of GAAP Net (Loss)/Income to Non-GAAP Normalized Net Income:		2016			2015			2016			2015
GAAP Net (Loss)/Income	$	(104,275	)	$	167,552		$	(420,204	)	$	438,126
Professional Fees (1)		583,547			280,156			1,503,722			518,028
Tax Expense on Professional Fees		(198,075	)		(95,014	)		(510,273	)		(175,228	)
Non-GAAP Normalized Net Income	$	281,197		$	352,694		$	573,245		$	780,926


				Total Number	Maximum
				of Shares	Number of
	Total			Purchased as	Shares that May
	Number of	Average		Part of Publicly	Yet Be
	Shares	Price Paid		Announced	Purchased
Period (1)	Purchased	Per Share		Plan (2)	Under the Plan (2)
September 1, 2016 – September 30, 2016	—		—	—	1,649,544
October 1, 2016 – October 31, 2016	23,300	$	0.44	23,300	1,626,244
November 1, 2016 - November 30, 2016	21,600	$	0.44	21,600	1,604,644
Total	44,900	$	0.44	44,900


(1)	Monthly information is presented by reference to the Company’s fiscal months during the third quarter of fiscal 2017.

(2)	On September 30, 2015, RMS’s Board of Directors authorized a stock repurchase program pursuant to which the Company will make open market purchases of up to 1,000,000 shares of the Company’s outstanding common stock. The purchases will be made through a broker to be designated by the Company with price, timing and volume restrictions based on average daily trading volume, consistent with the safe harbor rules of the Securities and Exchange Commission for such repurchases. As of November 30, 2016, the Company had repurchased 395,356 shares at an average price of $0.45 under the program. On June 29, 2016, the Board of Directors approved the amendment to the stock repurchase program increasing the authorized 1,000,000 shares to be repurchased to 2,000,000 shares. There is no expiration date to the program.


3(i)	Amended and Restated Certificate of Incorporation, effective December 28, 2016

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

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

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

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

101*	Interactive Data Files of Financial Statements and Notes.


	REPRO MED SYSTEMS, INC.

January ~~8, 2016~~5, 2017	/s/ Andrew I. Sealfon
	Andrew I. Sealfon, President, Chairman of the Board, Director, ~~Principal~~Chief Executive Officer

January ~~8, 2016~~5, 2017	/s/ Karen Fisher
	Karen Fisher, Chief Financial Officer and Treasurer