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 May 31, 2016June 30, 2017
Or
[ ] 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)
February 28
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Non-accelerated filer [ ] | Smaller reporting company [X] |
|
(Do not check if a smaller reporting company) |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
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 June 30, 2016, 37,963,501August 4, 2017, 37,834,871 shares of common stock, $.01$0.01 par value per share, were outstanding, which excludes 2,524,0312,737,231 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 | 3 |
|
|
|
| Statements of Operations (Unaudited) for the | 4 |
|
|
|
| Statements of Cash Flows (Unaudited) for the | 5 |
|
|
|
| Notes to Financial Statements |
|
|
|
|
ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
|
|
|
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
|
|
|
|
ITEM 4. | Controls and Procedures |
|
|
|
|
PART II– OTHER INFORMATION | ||
|
|
|
ITEM |
|
|
|
|
|
| Unregistered Sales of Equity Securities and Use of Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 6. | Exhibits |
|
- 2 -
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
REPRO MED SYSTEMS, INC.
BALANCE SHEETS
|
| May 31, |
|
|
|
| June 30, |
|
|
| ||||
|
| 2016 |
| February 29, |
|
| 2017 |
| February 28, |
| ||||
|
| (Unaudited) |
| 2016 |
|
| (Unaudited) |
| 2017 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
| $ | 3,860,648 |
| $ | 4,201,949 |
|
| $ | 2,982,508 |
| $ | 3,313,265 |
|
Certificates of deposit |
|
| 261,118 |
|
| 261,118 |
|
| 262,315 |
|
| 262,314 |
| |
Accounts receivable less allowance for doubtful accounts and returns of $27,174 at May 31, 2016 and $37,486 at February 29, 2016 |
|
| 1,353,936 |
|
| 1,350,180 |
| |||||||
Accounts receivable less allowance for doubtful accounts of $13,046 at June 30, 2017 and $18,046 at February 28, 2017 |
| 1,899,622 |
|
| 1,502,030 |
| ||||||||
Inventory |
|
| 1,123,567 |
|
| 1,040,277 |
|
| 1,267,214 |
|
| 1,353,703 |
| |
Tax Receivable |
| — |
|
| 172,457 |
| ||||||||
Prepaid expenses |
|
| 451,382 |
|
| 265,123 |
|
|
| 229,667 |
|
| 175,955 |
|
TOTAL CURRENT ASSETS |
|
| 7,050,651 |
|
| 7,118,647 |
|
| 6,641,326 |
|
| 6,779,724 |
| |
Property and equipment, net |
|
| 985,168 |
|
| 996,822 |
|
| 901,464 |
|
| 932,092 |
| |
Patents, net of accumulated amortization of $151,233 and $147,380 at May 31, 2016 and February 29, 2016, respectively |
|
| 267,206 |
|
| 247,691 |
| |||||||
Patents, net of accumulated amortization of $188,735and $180,137 at June 30, 2017 and February 28, 2017, respectively |
| 429,974 |
|
| 426,943 |
| ||||||||
Other assets |
|
| 31,490 |
|
| 31,140 |
|
|
| 31,582 |
|
| 31,490 |
|
TOTAL ASSETS |
| $ | 8,334,515 |
| $ | 8,394,300 |
|
| $ | 8,004,346 |
| $ | 8,170,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deferred capital gain - current portion |
| $ | 22,481 |
| $ | 22,481 |
| |||||||
Deferred capital gain - current |
| $ | 22,481 |
| $ | 22,481 |
| |||||||
Accounts payable |
|
| 608,167 |
|
| 307,764 |
|
| 279,130 |
|
| 772,428 |
| |
Accrued expenses |
|
| 502,634 |
|
| 499,406 |
|
| 353,997 |
|
| 417,357 |
| |
Accrued payroll and related taxes |
|
| 112,080 |
|
| 148,766 |
|
| 212,083 |
|
| 177,018 |
| |
Accrued tax liability |
|
| — |
|
| 129,497 |
|
| 1,384 |
|
| — |
| |
TOTAL CURRENT LIABILITIES |
|
| 1,245,362 |
|
| 1,107,914 |
|
|
| 869,075 |
|
| 1,389,284 |
|
Deferred capital gain - less current portion |
|
| 39,356 |
|
| 44,976 |
| |||||||
Deferred capital gain – long term |
| 15,002 |
|
| 22,496 |
| ||||||||
Deferred tax liability |
|
| 107,966 |
|
| 123,111 |
|
|
| 95,133 |
|
| 82,422 |
|
TOTAL LIABILITIES |
|
| 1,392,684 |
|
| 1,276,001 |
|
| $ | 979,210 |
| $ | 1,494,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common stock, $0.01 par value, 50,000,000 shares authorized, 40,487,532 shares issued; 37,963,501 shares outstanding at May 31, 2016 and 37,966,501 shares outstanding at February 29, 2016 |
|
| 404,875 |
|
| 404,875 |
| |||||||
Common stock, $0.01 par value; 75,000,000 shares authorized, 40,572,102 and 40,558,429 shares issued, 37,834,871 and 37,821,198 shares outstanding at June 30, 2017 and February 28, 2017, respectively |
| 405,721 |
|
| 405,584 |
| ||||||||
Additional paid-in capital |
|
| 4,019,292 |
|
| 3,968,342 |
|
| 4,117,845 |
|
| 4,129,726 |
| |
Retained earnings |
|
| 2,786,626 |
|
| 3,019,940 |
|
|
| 2,845,774 |
|
| 2,484,941 |
|
|
|
| 7,210,793 |
|
| 7,393,157 |
|
| 7,369,340 |
|
| 7,020,251 |
| |
Less: Treasury stock at cost, 2,524,031 shares at May 31, 2016 and 2,521,031 at February 29, 2016 |
|
| (247,962 | ) |
| (246,858 | ) | |||||||
Less: Deferred compensation cost |
|
| (21,000 | ) |
| (28,000 | ) | |||||||
Less: Treasury stock, 2,737,231 shares at June 30, 2017 and February 28, 2017 |
|
| (344,204 | ) |
| (344,204 | ) | |||||||
TOTAL STOCKHOLDERS’ EQUITY |
|
| 6,941,831 |
|
| 7,118,299 |
|
|
| 7,025,136 |
|
| 6,676,047 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 8,334,515 |
| $ | 8,394,300 |
|
| $ | 8,004,346 |
| $ | 8,170,249 |
|
The accompanying notes are an integral part of these financial statements
- 3 -
REPRO MED SYSTEMS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
|
| For the Three Months Ended |
|
| For the One Month Ended |
| For the Three Months Ended |
| For the Four Months Ended |
| ||||||||||||||||
|
| May 31, |
|
| March 31 |
| June 30 |
| June 30 |
| ||||||||||||||||
|
| 2016 |
| 2015 |
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
NET SALES |
| $ | 2,990,166 |
| $ | 2,630,545 |
|
| $ | 1,509,619 |
| $ | 1,276,299 |
| $ | 3,829,457 |
| $ | 2,795,894 |
| $ | 5,339,076 |
| $ | 4,072,193 |
|
Cost of goods sold |
|
| 1,053,354 |
|
| 1,112,686 |
|
|
| 536,823 |
|
| 446,618 |
|
| 1,532,158 |
|
| 1,008,749 |
|
| 2,068,981 |
|
| 1,455,367 |
|
Gross Profit |
| 1,936,812 |
|
| 1,517,859 |
|
|
| 972,796 |
|
| 829,681 |
|
| 2,297,299 |
|
| 1,787,145 |
|
| 3,270,095 |
|
| 2,616,826 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling, general and administrative |
| 2,179,590 |
|
| 1,478,339 |
|
|
| 637,707 |
|
| 655,043 |
|
| 2,005,336 |
|
| 2,118,159 |
|
| 2,643,043 |
|
| 2,773,202 |
| |
Research and development |
| 56,668 |
|
| 53,665 |
|
|
| 7,872 |
|
| 14,535 |
|
| 24,840 |
|
| 57,403 |
|
| 32,712 |
|
| 71,938 |
| |
Depreciation and amortization |
|
| 70,156 |
|
| 64,719 |
|
|
| 25,576 |
|
| 23,536 |
|
| 76,781 |
|
| 73,041 |
|
| 102,357 |
|
| 96,577 |
|
Total Operating Expenses |
|
| 2,306,414 |
|
| 1,596,723 |
|
|
| 671,155 |
|
| 693,114 |
|
| 2,106,957 |
|
| 2,248,603 |
|
| 2,778,112 |
|
| 2,941,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Operating Loss |
| (369,602) |
|
| (78,864 | ) | ||||||||||||||||||||
Net Operating Profit/(Loss) |
|
| 301,641 |
|
| 136,567 |
|
| 190,342 |
|
| (461,458 | ) |
| 491,983 |
|
| (324,891 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Non-Operating Income/(Expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Gain (Loss) currency exchange |
| 15,633 |
|
| (15,070 | ) | ||||||||||||||||||||
Loss on disposal of fixed assets |
| — |
|
| (4,606 | ) | ||||||||||||||||||||
Gain/(Loss) on currency exchange |
|
| 19,988 |
|
| 36,673 |
|
| 34,671 |
|
| (24,340 | ) |
| 54,659 |
|
| 12,333 |
| |||||||
Interest and other income |
|
| 754 |
|
| 1,103 |
|
|
| 322 |
|
| 321 |
|
| 421 |
|
| 752 |
|
| 743 |
|
| 1,073 |
|
TOTAL OTHER INCOME (EXPENSES) |
|
| 16,387 |
|
| (18,573 | ) | |||||||||||||||||||
TOTAL OTHER INCOME/(EXPENSE) |
|
| 20,310 |
|
| 36,994 |
|
| 35,092 |
|
| (23,588 | ) |
| 55,402 |
|
| 13,406 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
LOSS BEFORE TAXES |
| (353,215 | ) |
| (97,437 | ) | ||||||||||||||||||||
PROFIT/(LOSS) BEFORE TAXES |
|
| 321,951 |
|
| 173,561 |
|
| 225,434 |
|
| (485,046 | ) |
| 547,385 |
|
| (311,485 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income Tax Benefit |
|
| 119,901 |
|
| 32,797 |
| |||||||||||||||||||
Income Tax (Expense)Benefit |
|
| (109,590 | ) |
| (59,231 | ) |
| (76,962 | ) |
| 164,834 |
|
| (186,552 | ) |
| 105,603 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
NET LOSS |
| $ | (233,314 | ) | $ | (64,640 | ) | |||||||||||||||||||
NET INCOME/(LOSS) |
| $ | 212,361 |
| $ | 114,330 |
| $ | 148,472 |
| $ | (320,212 | ) | $ | 360,833 |
| $ | (205,882 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
NET LOSS PER SHARE |
|
|
|
|
|
| ||||||||||||||||||||
NET INCOME/(LOSS) PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic |
| $ | (0.01 | ) | $ | — |
|
| $ | 0.01 |
| $ | — |
| $ | — |
| $ | (0.01 | ) | $ | 0.01 |
| $ | (0.01 | ) |
Diluted |
| $ | (0.01 | ) | $ | — |
|
| $ | 0.01 |
| $ | — |
| $ | — |
| $ | (0.01 | ) | $ | 0.01 |
| $ | (0.01 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic |
|
| 37,965,979 |
|
| 38,006,667 |
|
|
| 37,821,198 |
|
| 37,966,501 |
|
| 37,825,209 |
|
| 37,964,985 |
|
| 37,824,189 |
|
| 37,965,370 |
|
Diluted |
|
| 37,965,979 |
|
| 38,006,667 |
|
|
| 37,847,628 |
|
| 37,966,501 |
|
| 37,891,306 |
|
| 37,964,985 |
|
| 37,877,694 |
|
| 37,965,370 |
|
The accompanying notes are an integral part of these financial statements
- 4 -
REPRO MED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| For the Three Months Ended |
|
| For the Four Months Ended |
| ||||||||
|
| May 31, |
| May 31, |
|
| June 30, |
| ||||||
|
| 2016 |
| 2015 |
|
| 2017 |
| 2016 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| |||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
| |||
Net loss |
| $ | (233,314 | ) | $ | (64,640 | ) | |||||||
Adjustments to reconcile net loss to net cash (used in)/provided by operating activities: |
|
|
|
|
|
|
| |||||||
Net Income (Loss) |
| $ | 360,833 |
| $ | (205,882 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
| ||||||||
Amortization of deferred compensation cost |
|
| 7,000 |
|
| 7,000 |
|
| — |
|
| 7,000 |
| |
Stock based compensation expense |
|
| 50,950 |
|
| — |
|
| 7,615 |
|
| 69,714 |
| |
Depreciation and amortization |
|
| 70,156 |
|
| 64,719 |
|
| 102,357 |
|
| 96,577 |
| |
Deferred capital gain - building lease |
|
| (5,620 | ) |
| (5,618 | ) |
| (7,493 | ) |
| (7,493 | ) | |
Deferred taxes |
|
| (15,144 | ) |
| (2,380 | ) |
| 12,711 |
|
| (15,144 | ) | |
Loss on disposal of fixed assets |
|
| — |
|
| 4,606 |
| |||||||
Allowance for returns and doubtful accounts |
|
| (10,312 | ) |
| 951 |
| |||||||
Provision for returns and doubtful accounts |
| (5,000 | ) |
| (10,312 | ) | ||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Decrease in accounts receivable |
|
| 6,555 |
|
| 148,234 |
| |||||||
Increase in inventory |
|
| (83,290 | ) |
| (186,000 | ) | |||||||
Increase in prepaid expense |
|
| (186,259 | ) |
| (168,325 | ) | |||||||
Increase in other assets |
|
| (350 | ) |
| — |
| |||||||
Increase in accounts payable |
|
| 300,402 |
|
| 154,275 |
| |||||||
(Decrease) Increase in accrued payroll and related taxes |
|
| (36,686 | ) |
| 123,885 |
| |||||||
Increase (Decrease) in accrued expense |
|
| 3,228 |
|
| (65,606 | ) | |||||||
Decrease in accrued income tax liability |
|
| (129,497 | ) |
| — |
| |||||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES |
|
| (262,181 | ) |
| 11,101 |
| |||||||
Increase in accounts receivable |
| (392,592 | ) |
| (376,551 | ) | ||||||||
Decrease in inventory |
| 86,489 |
|
| 1,575 |
| ||||||||
Decrease/(Increase) in prepaid expense and other assets |
| 118,652 |
|
| (108,855 | ) | ||||||||
(Decrease)/Increase in accounts payable |
| (493,297 | ) |
| 186,109 |
| ||||||||
Increase/(Decrease) in accrued payroll and related taxes |
| 35,065 |
|
| (21,489 | ) | ||||||||
Decrease in accrued expense |
| (63,360 | ) |
| (67,383 | ) | ||||||||
Increase/(Decrease) in accrued tax liability |
| 1,384 |
|
| (92,003 | ) | ||||||||
NET CASH USED IN OPERATING ACTIVITIES |
|
| (236,636 | ) |
| (544,137 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Payments for property and equipment |
|
| (54,649 | ) |
| (61,344 | ) |
| (63,133 | ) |
| (74,549 | ) | |
Payments for patents |
|
| (23,366 | ) |
| (36,356 | ) |
| (11,628 | ) |
| (29,085 | ) | |
NET CASH USED IN INVESTING ACTIVITIES |
|
| (78,015 | ) |
| (97,700 | ) |
|
| (74,761 | ) |
| (103,634 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Payment for cancelled shares |
| (19,360 | ) |
| — |
| ||||||||
Purchase of treasury stock |
|
| (1,105 | ) |
| — |
|
| — |
|
| (1,105 | ) | |
NET CASH USED IN FINANCING ACTIVITIES |
|
| (1,105 | ) |
| — |
|
|
| (19,360 | ) |
| (1,105 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
| (341,301 | ) |
| (86,599 | ) |
| (330,757 | ) |
| (648,876 | ) | |
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
| 4,201,949 |
|
| 2,557,235 |
| |||||||
CASH AND CASH EQUIVALENTS, END OF YEAR |
| $ | 3,860,648 |
| $ | 2,470,636 |
| |||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
| 3,313,265 |
|
| 4,201,948 |
| |||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 2,982,508 |
| $ | 3,553,072 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Supplemental Information |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid during the years for: |
|
|
|
|
|
|
| |||||||
Cash paid during the periods for: |
|
|
|
|
|
| ||||||||
Interest |
| $ | — |
| $ | — |
|
| $ | — |
| $ | — |
|
Taxes |
| $ | 91,600 |
| $ | — |
|
| $ | — |
| $ | 90,000 |
|
|
|
|
|
|
|
| ||||||||
NON-CASH FINANCING AND INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Issuance of common stock as compensation |
| $ | — |
| $ | — |
|
| $ | 45,000 |
| $ | 24,718 |
|
The accompanying notes are an integral part of these financial statements
- 5 -
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”, or “we”) designs, manufactures and markets proprietary medical devices primarily for the ambulatory infusion market and emergency medical applications in compliance withas governed by the United States Food and Drug Administration (the “FDA”) quality and regulatory system and international standards for quality management system.systems. The Company operates as one segment.
FISCAL YEAR END
On March 22, 2017, the Board of Directors approved a change in the Company’s fiscal year end from February 28 to December 31. With this fiscal year end change, the Company will report one-time, transitional financial information for the month of March 2017 and the quarter April through June 2017 on Form 10-Q.
BASIS OF PRESENTATION
The accompanying unaudited financial statements as of May 31, 2016,June 30, 2017, 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 May 31, 2016,June 30, 2017, and the results of operations and cash flow for the three-monthfour months periods ended May 31, 2016,June 30, 2017, and 2015.2016.
The results of operations for the threefour months ended May 31,June 30, 2017, and 2016 and 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 29, 2016,28, 2017, 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 May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09—Compensation-Stock Compensation (Topic 718), which provides clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update affect any entity that changes the terms or conditions of a share-based payment award. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.
- 6 -
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 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. We currently anticipate adopting the new standard using the modified retrospective method beginning January 1, 2018. 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.
- 6 -
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 Company is assessingeffective date and transition requirements for the impact ofamendments in this update are the adoption ofsame as the ASU on its financial statements, disclosureeffective date and transition requirements and methods of adoption.
for Topic 606 (and any other Topic amended by update 2014-09). In MayDecember 2016, the FASB issued ASU No. 2016-112016-20 Technical Corrections and Improvements to Topic 606, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815); Rescissionfrom Contracts with Customers, which represents changes to make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. This update is the final, combined version of SEC Guidance Because ofProposed Accounting Standards Updates 2014-092016-240 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting,2016-320 (both entitled Technical Corrections and Improvements), which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, and Topic 932, Extractive Activities—Oil and Gas, effectivehave been deleted. Based upon adoption of Topic 606. The Company doesour initial evaluation, we do not expect the adoption of the ASUstandard and related amendments to have any impacta material effect on itsour financial statements.
In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-09 — Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU was issued as partcondition or results 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.operations.
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 on our financial statements, disclosure requirements and expect it willmethods of adoption.
- 7 -
The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material impacteffect on our consolidated financial condition andor results of operations upon adoption.
In July 2015, the FASB issued Accounting Standards Update (“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.operations.
STOCK-BASED COMPENSATION
The Company maintains variousa long-term incentive stock benefit plansplan 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.
- 7 -
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 zero and $7,000 for the each of the threefour months ended May 31,June 30, 2017 and 2016, and May 31, 2015. 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.respectively.
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 providesprovided for payment of $16,000 per month for eight days per month, of which half iswas to be paid in cash and half iswas to be paid in shares of common stock. Effective January 1, 2016, the agreement providesprovided for the same payment of $16,000 per month, of which seventy-five percent iswas to be paid in cash and twenty-five percent iswas to be paid in shares of common stock.
On April 26, 2016, Cyril Narishkin was appointed President of the Company.
On June 24, 2016, Cyril Narishkin executed a termination and general release agreement, which terminated his previous consulting agreement, and resigned as President, Interim Chief Operating Officeran officer and Directordirector for personal reasons. Mr. Narishkin will bewas 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 Company.
On Mr. Narishkin’s compensation was zero and $118,000 for the four months ended June 29,30, 2017 and 2016, Andrew Sealfon was reinstated as Presidentrespectively. In accordance with the agreement, the Company repurchased 96,542 shares of common stock of the Company.Company owned by Mr. Narishkin at an aggregate purchase price of $43,393.
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 were $5,375$5,668 and $7,167 for each of the threefour months ended May 31,June 30, 2017 and June 30, 2016, and May 31, 2015.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 seventeennineteen 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. With a monthly lease amount of $11,042, the lease payments were $44,168 for each of the four months ended June 30, 2017 and June 30, 2016. The Company also paid property taxes for the four months ended June 30, 2017 and June 30, 2016 in the amount of $16,236 and $15,825, respectively.
We are currently seeking another location within a 30 mile radius from our current facility with more square footage to accommodate our expanding needs. In addition to the increased costs of occupying a larger space, we expect to incur additional costs in connection with construction and FDA compliance with respect to the new location. There can be no assurance that we will find a suitable location before our current lease expires on terms that are economically favorable to us or at all.
- 8 -
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
|
| May 31, 2016 |
| February 29, 2016 |
| ||
|
|
|
|
|
|
|
|
Land |
| $ | 54,030 |
| $ | 54,030 |
|
Building |
|
| 171,094 |
|
| 171,094 |
|
Furniture, office equipment, and leasehold improvements |
|
| 975,926 |
|
| 923,394 |
|
Manufacturing equipment and tooling |
|
| 953,985 |
|
| 961,486 |
|
|
|
| 2,155,035 |
|
| 2,110,004 |
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation |
|
| 1,169,867 |
|
| 1,113,182 |
|
Property and equipment, net |
| $ | 985,168 |
| $ | 996,822 |
|
- 8 -
|
| June 30, 2017 |
| February 28, 2017 |
| ||
|
|
|
|
|
|
|
|
Land |
| $ | 54,030 |
| $ | 54,030 |
|
Building |
|
| 171,094 |
|
| 171,094 |
|
Furniture, office equipment, and leasehold improvements |
|
| 1,048,818 |
|
| 1,022,942 |
|
Manufacturing equipment and tooling |
|
| 1,031,207 |
|
| 1,003,166 |
|
|
|
| 2,305,149 |
|
| 2,251,232 |
|
Less: accumulated depreciation |
|
| 1,403,685 |
|
| 1,319,140 |
|
Property and equipment, net |
| $ | 901,464 |
| $ | 932,092 |
|
NOTE 4 LEGAL PROCEEDINGS
InLawyers representing EMED Technologies Corp. (“EMED”) sent RMS a letter dated, May 1, 2013, which alleged that the RMS High-Flo Butterfly design infringed a patent controlled by EMED. RMS disputed this claim and we believed that our design did not infringe and that the EMED patent itself was not valid. Under advice of counsel, on 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 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 challenging RMS’s complianceseeking 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 order. RMS will be opposingthe language in the Company’s labeling that motion. 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 forseeking a second preliminary injunction regarding salesprohibiting RMS from selling three of RMSits products in California. The Company opposed that motion whichon April 19, 2016. A decision on the motion is still pending. Discovery is ongoing.
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 requested that the Texas suit be transferred to California. Also, based on a validity review of the patent in the U.S. Patent and Trademark Office (USPTO)(“USPTO”), discussed below, the Company requested the Texas suit be stayed. On May 12, 2016, the Court entered an order staying the case until after the Patent Trial and Appeal Board (“PTAB”) at the USPTO issuesissued a final written decision regarding the validity of the patent. On January 12, 2017, the PTAB issued its final written decision invalidating the claims asserted by EMED in the Texas litigation. On January 26, 2017, the Company and EMED requested that the Texas case remain stayed pending EMED’s appeal of the PTAB’s final ruling to the Court of Appeals for the Federal Circuit (“CAFC”).
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)(“IPR”) of the patent in the second filed case. On November 20, 2015, the U.S. Patent and Trademark Office (USPTO)USPTO instituted the ex parte reexamination request having found a substantial new question of patentability concerning EMED’s patent in the first filed case. All EMED claims have been rejected by the USPTO Examiner in a Non-Final Office Action. EMED filed a response that is awaiting consideration by the Examiner. Thus, the ex parte reexamination is ongoing. A decision to institute the 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. BothOral argument for the ex parte reexaminationIPR was held on November 22, 2016 and a final ruling issued on January 12, 2017. In its final ruling, the inter partes review are ongoing.PTAB held the claim asserted by EMED against the Company in the second filed case was invalid. EMED appealed the PTAB’s final ruling, and EMED’s opening brief in the CAFC was filed on June 26, 2017. The Company is now responding.
Although the Company believes it has meritorious claims and defenses in these litigationsactions and proceedings, their outcomes cannot be predicted with any certainty. We believe that it is very likely both patents will be determined invalid, however, 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.
- 9 -
NOTE 5 STOCKHOLDERS’ EQUITY
On September 30, 2015, RMS’s Board of Directors authorized a stock repurchase program pursuant to which the Company willto make open market purchases of up to 1,000,0002,000,000 shares of the Company’s Outstanding Common Stock. The purchases will beare 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 May 31, 2016,June 30, 2017, the Company had repurchased 183,406396,606 shares at an average price of $0.45 under the program. The management of the Company decided to discontinue repurchasing its outstanding common stock under the program for an undetermined period of time to utilize cash for capital investments needed to expand the business.
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 at the Annual Meeting to beof Shareholders held on September 6, 2016. The total number of shares of common stock of the Company, par value $0.01 per share (“Common Stock”), with respect to which awards may be granted pursuant to the Plan shallwas 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 May 31, 2016, the CompanyJune 30, 2017, there were outstanding 1,113,000 options awarded 1,060,000 options to certain executives, and key employees and advisory board members under the plan.Plan.
On October 21, 2015, the Board of Directors of the Company approved non-employee director compensation of $25,000 each annually, to be paid quarterly half in cash and half in common stock, effectivebeginning September 1, 2015. Beginning March 1, 2016, all Directors, excluding Mr. Andrew Sealfon, the Company’s Chief Executive Officer, will receive director compensation.
The per share weighted average fair value of stock options granted during the threefour months ended May 31,June 30, 2017 and June 30, 2016 and May 31, 2015 was $0.19$0.24 and zero, 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 threefour months ended May 31,June 30, 2017 and June 30, 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:
|
| June 30, |
| ||||
|
| 2017 |
| 2016 |
| ||
|
|
|
|
|
|
|
|
Dividend yield |
|
| 0.00% |
|
| 0.00% |
|
Expected Volatility |
|
| 59.00-72.2% |
|
| 59.00% |
|
Weighted-average volatility |
|
| — |
|
| — |
|
Expected dividends |
|
| — |
|
| — |
|
Expected term (in years) |
|
| 4 - 5 Years |
|
| 5 Years |
|
Risk-free rate |
|
| 2.17-2.48% |
|
| 2.17% |
|
- 910 -
|
| Three Months Ended May 31, |
| ||||
|
| 2016 |
| 2015 |
| ||
|
|
|
|
|
|
|
|
Dividend yield |
|
| 0.00% |
|
| — |
|
Expected Volatility |
|
| 59.00% |
|
| — |
|
Weighted-average volatility |
|
| — |
|
| — |
|
Expected dividends |
|
| — |
|
| — |
|
Expected term (in years) |
|
| 5 Years |
|
| — |
|
Risk-free rate |
|
| 2.17% |
|
| — |
|
The following table summarizes the status of the Company’s stock option plan:Plan:
|
| Three Months Ended May 31, |
|
| Four Months Ended June 30, |
| |||||||||||||||||||
|
| 2016 |
| 2015 |
|
| 2017 |
| 2016 |
| |||||||||||||||
|
| Shares |
| Weighted |
| Shares |
| Weighted |
|
| Shares |
| Weighted |
| Shares |
| Weighted |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Outstanding at March 1 |
| 1,060,000 |
| $ | 0.36 - 0.38 |
|
| — |
| $ | — |
|
| 1,345,000 |
| $ | 0.39 |
|
| 1,060,000 |
| $ | 0.37 |
| |
Granted |
| — |
| $ | — |
|
| — |
| $ | — |
|
| 18,000 |
| $ | — |
|
| — |
| $ | — |
| |
Exercised |
| — |
| $ | — |
|
| — |
| $ | — |
|
| — |
| $ | — |
|
| — |
| $ | — |
| |
Forfeited |
| — |
| $ | — |
|
| — |
| $ | — |
|
| 250,000 |
| $ | 0.36 |
|
| — |
| $ | — |
| |
Outstanding at May 31, 2016, |
| 1,060,000 |
| $ | 0.36 - 0.38 |
|
| — |
| $ | — |
| |||||||||||||
Options exercisable at May 31, |
| — |
| $ | — |
|
| — |
| $ | — |
| |||||||||||||
Outstanding at June 30 |
| 1,113,000 |
| $ | 0.39 |
|
| 1,060,000 |
| $ | 0.37 |
| |||||||||||||
Options exercisable at June 30, |
| 538,000 |
| $ | 0.38 |
|
| — |
| $ | — |
| |||||||||||||
Weighted average fair value of options granted during the period |
| — |
| $ | — |
|
| — |
| $ | — |
|
| — |
| $ | — |
|
| — |
| $ | — |
| |
Stock-based compensation expense |
| — |
| $ | 37,542 |
|
| — |
| $ | — |
|
| — |
| $ | (37,385 | ) |
| — |
| $ | 50,055 |
|
Total stock-based compensation expense, net of estimated forfeitures for stock option awards totaled $37,542$(37,385) and zero$50,055 for the threefour months ended May 31,June 30, 2017 and June 30, 2016, and May 31, 2015, respectively.
The weighted-average grant-date fair value of options granted during threethe four months ended May 31,June 30, 2017 and June 30, 2016, was $4,356 and May 31, 2015 was zero, for both periods.respectively. The total intrinsic value of options exercised during threethe four months ended May 31,June 30, 2017 and June 30, 2016, and May 31, 2015, was zero for both periods.
The following table presents information pertaining to options outstanding at May 31, 2016:June 30, 2017:
Range of Exercise Price |
| Number |
| Weighted |
| Weighted |
| Number |
| Weighted |
|
| Number |
| Weighted |
| Weighted |
| Number |
| Weighted |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.36 - $0.38 |
| 1,060,000 |
| 5 years |
| $ | 0.37 |
| — |
| $ | — |
| |||||||||||||
$0.36 - $0.41 |
| 1,113,000 |
| 5 years |
| $ | 0.39 |
| 538,000 |
| $ | 0.38 |
|
As of May 31, 2016,June 30, 2017, there was $0.1 million$113,821 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 17 months. The total fair value of shares vested during the threefour months ended May 31,June 30, 2017 and June 30, 2016, was $9,300 and May 31, 2015, was zero, for both periods.respectively.
- 1011 -
PART I – ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-Q contains certain “forward-looking” statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to us that are based on the beliefs of the management, as well as assumptions made and information currently available.
Our actual results may vary materially from the forward-looking statements made in this report due to important factors such as uncertainties associated with future operating results, unpredictability related to Food and Drug Administration regulations, introduction of competitive products, limited liquidity, reimbursement related risks, government regulation of the home health care industry, success of the research and development effort, expanding the market of FREEDOM60®, availability of sufficient capital to continue operations, and dependence on key personnel.personnel and the outcome of litigation and regulatory investigation. When used in this report, the words “estimate,” “project,” “believe,” “may,” “will,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. Such statements reflect current views with respect to future events based on currently available information and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. These statements involve risks and uncertainties with respect to the ability to raise capital if or when needed to develop and market new products, acceptance in the marketplace of and demand for 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, succeeding in litigation claims and resolving the FDA Warning Letter that could cause the actual results to differ materially. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. The Company 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.
Throughout this report, “RMS,” the “Company,” “we,” “us” and “our” refer to Repro Med Systems, Inc.
OVERVIEW
On March 22, 2017, the Board of Directors approved a change in the Company’s fiscal year end from February 28 to December 31. With this fiscal year end change, the Company is reporting one-time, transitional financial information for the month of March 2017 and the quarter April through June 2017.
During the four month period ended June 30, 2017, we delivered sales growth both domestically and internationally, ramped up production to keep pace with demand and found ways to lower costs. The FDA renewed our Certificate to Foreign Government which is used to communicate to foreign governments that the FDA certified that RMS meets good manufacturing practices and quality system regulations. We received registrations in new countries, launched our new flow controller in Europe and started several clinical trials with drug companies. Furthermore, we have launched a new marketing campaign, redesigned our packaging and entered the social media world to help extend our brand awareness. We plan to continue to focus on global sales growth, cost control and new product development. Additionally, we continue to look for a new facility with more square footage to accommodate our expanding needs.
Our net sales results for the four months ended June 30, 2017 increased 31.1%, versus the same period last year. Part of the increase was the result of backorders of $0.4 million at February 28, 2017 which were filled during the four months ended June 30, 2017. Excluding these backorders, net sales grew 21.6% driven by organic growth both domestically and internationally, which included two large pump orders accelerated into this period and a large return of product related to a market withdrawal last year. Our selling, general and administrative costs were 4.7% lower for the four months ended June 30, 2017 compared with the same period last year. We saw a significant reduction in legal fees related to our litigation and FDA regulatory efforts. However, we cannot predict whether this trend will continue, nor can we predict the outcome of the litigation or regulatory process. We also had reductions in sales and marketing driven by reduced recruiting and consulting fees that were incurred last year related to our website redesign, public relations, sales training and lead generation efforts and the timing of spend for current year marketing initiatives. Offsetting these savings were increased salary and related benefit costs in our regulatory department due to headcount to support our regulatory compliance requirements.
- 12 -
RESULTS OF OPERATIONS
ThreeFour Months Ended May 31, 2016June 30, 2017 compared to May 31, 2015June 30, 2016
Net Sales
The following table summarizes our net sales for the threefour months ended May 31, 2016June 30, 2017 and 2015:2016:
|
| Three Months Ended May 31, |
| Change from Prior Year |
| % of Sales |
|
| Four Months Ended June 30, |
| Change from Prior Year |
| % of Sales |
| ||||||||||||||||||
|
| 2016 |
| 2015 |
| $ |
| % |
| 2016 |
| 2015 |
|
| 2017 |
| 2016 |
| $ |
| % |
| 2016 |
| 2015 |
| ||||||
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
| $ | 2,466,951 |
| $ | 2,075,661 |
| $ | 391,290 |
| 18.9 | % | 82.5 | % | 78.9 | % |
| $ | 4,254,605 |
| $ | 3,287,740 |
| $ | 966,865 |
| 29.4% |
| 79.7% |
| 80.7% |
|
International |
|
| 523,215 |
|
| 554,884 |
|
| (31,669 | ) | (5.7 | )% | 17.5 | % | 21.1 | % |
|
| 1,084,471 |
|
| 784,453 |
|
| 300,018 |
| 38.2% |
| 20.3% |
| 19.3% |
|
Total |
| $ | 2,990,166 |
| $ | 2,630,545 |
| $ | 359,621 |
| 13.7 | % |
|
|
|
|
| $ | 5,339,076 |
| $ | 4,072,193 |
| $ | 1,266,883 |
| 31.1% |
|
|
|
|
|
Total net sales were up $0.4increased $1.3 million or 13.7% in31.1% for the quarterfour months ended May 31, 2016 compared to the quarter ended May 31, 2015. Domestic sales grew $0.4 million or 18.9% quarter over quarter mostly due to above market growth in our organic base and winning several new customers. The international market reported a 5.7% decline mostly due to lower pump and Res-Q-Vac sales in the quarter ended May 31, 2016June 30, 2017 compared with the same period last year. Part of the increase came from fulfilling backorders of $0.4 million at February 28, 2017. Excluding these backorders, net sales increased 21.6%. This growth was driven by both domestic and international sales, resulting from increased organic growth in all product categories. The launch of a new drug generated increased needle sales as customers built inventory, two large pump orders were accelerated forward into this period and last year partially offset by tubing and needle set sales.
Our infusion products, which include the FREEDOM60 Syringe Infusion System (“FREEDOM60”) and RMS HIgH-Flo Subcutaneous Safety Needle Sets drove this increase.included a large return of product related to a market withdrawal. We have concentratedcontinue to concentrate the majority of our efforts in our infusion product lines, specifically towards new applications in both domestic and international markets. We anticipate sales to continue to increase aspursue registrations in new marketscountries, although revenue realization could take up to eighteen months from the initial registration efforts. We also continue to develop and as we work on new enhancements to the FREEDOM60 that we believe will expand markets even further. Ourour sales efforts to reenter into the antibiotic market resulted in a large home care hospital system selecting the FREEDOM60 for all patients receiving this therapy, which continues to add to our revenue growth.market.
Gross Profit
Our gross profit for the threefour months ended May 31,June 30, 2017 and 2016 and 2015 is as follows:
|
| Three Months Ended May 31, |
| Change from Prior Year |
|
| Four Months Ended June 30, |
| Change from Prior Year |
| ||||||||||||||
|
| 2016 |
| 2015 |
| $ |
| % |
|
| 2017 |
| 2016 |
| $ |
| % |
| ||||||
Gross Profit |
| $ | 1,936,812 |
| $ | 1,517,859 |
| $ | 418,953 |
| 27.6 | % |
| $ | 3,270,095 |
| $ | 2,616,826 |
| $ | 653,269 |
| 25.0% |
|
Stated as a Percentage of Net Sales |
|
| 64.8 | % |
| 57.7 | % |
|
|
|
|
|
|
| 61.2% |
|
| 64.3% |
|
|
|
|
|
|
- 11 -
Gross profit increased $0.4$0.7 million or 27.6%25.0% in the threefour months ended May 31, 2016, asJune 30, 2017, compared to the same period in 2015.2016. This improvementincrease in the quarter was mostly driven by the increase in net revenues of $1.3 million. Partially offsetting this increase was higher salesproduction costs related to scrap during quality inspections as we work to implement a nondestructive testing protocol. Additionally, we had higher sterilization costs due to more frequent cycles required to meet demand and lower cost of goods sold resulting from the freeze on the medical device tax, lower payrollbacklog and related expensesincreased shipping costs due to the lean initiatives, as well as lower consulting fees for implementing lean initiatives inbacklog. We also had higher production salary and related benefits costs from overtime and the same quarter last year.addition of a second shift to meet increased demand.
Selling, general and administrative and Research and development
Our selling, general and administrative expenses and research and development costs for the threefour months ended May 31,June 30, 2017 and 2016 and 2015 are as follows:
|
| Three Months Ended May 31, |
| Change from Prior Year |
|
| Four Months Ended June 30, |
| Change from Prior Year |
| ||||||||||||||
|
| 2016 |
| 2015 |
| $ |
| % |
|
| 2017 |
| 2016 |
| $ |
| % |
| ||||||
Selling, general and administrative |
| $ | 2,179,590 |
| $ | 1,478,339 |
| $ | 701,251 |
| 47.4 | % |
| $ | 2,643,043 |
| $ | 2,773,202 |
|
| (130,159 | ) | (4.7% | ) |
Research and development |
|
| 56,668 |
|
| 53,665 |
|
| 3,003 |
| 5.6 | % |
|
| 32,712 |
|
| 71,938 |
|
| (39,226 | ) | (54.5% | ) |
|
| $ | 2,236,258 |
| $ | 1,532,004 |
| $ | 704,254 |
| 46.0 | % |
| $ | 2,675,755 |
| $ | 2,845,140 |
|
| (169,385 | ) | (-6.0% | ) |
Stated as a Percentage of Net Sales |
|
| 74.8 | % |
| 58.2 | % |
|
|
|
|
|
|
| 50.1% |
|
| 69.9% |
|
|
|
|
|
|
- 13 -
Selling, general and administrative expenses increased $0.7decreased $0.1 million, or 4.7%, during the threefour months ended May 31, 2016 asJune 30, 2017 compared to the same period last year. The majoritydecrease was the result of a significant reduction in legal fees related to our litigation and regulatory efforts. However, we cannot predict whether this increase came fromtrend will continue, nor can we predict the outcome of the litigation. We are making every effort to manage the spend on professional fees while making sure we do whatever is necessary to achieve a positive outcome regarding out litigation and FDA matters. We also had reductions in sales and marketing driven by reduced recruiting fees, lower consulting fees for operations managementrelated to our website redesign last year, timing of spend this year on marketing initiatives and regulatory initiatives, higher recruiting fees and travel for sales activities, all partially offset by lower payrollsalary and related expensescosts due to lean initiatives and the severance payments paidattrition. Partially offsetting these savings were increased costs in the three months ended May 31, 2015.our regulatory department due to headcount to support our regulatory compliance requirements.
Research and development expenses increased slightly, up 5.6%.expense decreased by 54.5%, primarily due to attrition for the period. We are committed to our research and development activities and are actively searching to replace the open position. We continue to actively pursue new product development and enhance existing product lines based on demand from the marketplace which includes feedback from sales and marketing at RMS and our distributors, the RMS clinical advisory panel, and our strategic business partners. We believe that such efforts have been useful in helping us to maintain our competitive position, increase revenue from our existing customer base and expand our market reach. Although our research and development efforts have allowed us to develop the Freedom60, our HIgH-Flo needle sets, and the FreedomEdge® in 2015, there can be no assurance that our research and development will result in additional commercially successful products.
Depreciation and amortization
Depreciation and amortization expense increased by 8.4%6.0% up to $70,156$102,357 in the threefour months ended May 31, 2016June 30, 2017 compared with $64,719$96,577 in the threefour months ended May 31, 2015June 30, 2016 as a result of continued investment in capital assetsnew computer equipment for both administrative support and for production requirements, patent applications and maintenance of existing patents.
Net LossIncome/(Loss)
|
| Three Months Ended May 31, |
| Change from Prior Year |
|
| Four Months Ended June 30, |
| Change from Prior Year |
| ||||||||||||
|
| 2016 |
| 2015 |
| $ |
| % |
|
| 2017 |
| 2016 |
| $ |
| ||||||
Net Loss |
| $ | (233,314 | ) | $ | (64,640 | ) | $ | (168,674 | ) | (260.9 | )% | ||||||||||
Net Income/(Loss) |
| $ | 360,833 |
| $ | (205,882 | ) | $ | 566,715 |
| ||||||||||||
Stated as a Percentage of Net Sales |
|
| (7.8 | )% |
| (2.5 | )% |
|
|
|
|
|
|
| 6.8% |
|
| (5.1% | ) |
|
|
|
Our net lossincome for the threefour months ended May 31, 2016June 30, 2017 was $0.2$0.4 million compared to $0.1a net loss of $0.2 million for the threefour months ended May 31, 2015, a $0.2June 30, 2016. This $0.6 million increase in loss,was mostly as a result of the increase in sales and reduced selling, general and administrative expenses of $0.7 million as described above. Additionally, the Company recognized a $54,659 foreign exchange gain for the period.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of liquidity is our cash of $4.1$3.0 million as of May 31, 2016,June 30, 2017, and cash flows from operations. Our principal source of operating cash inflows is from sales of our products to customers. Our principal cash outflows relate to the purchase and production of inventory and related costs, selling, general and administrative expenses, research and development costs, capital expenditures and patent costs.
We believe that as of May 31, 2016,June 30, 2017, cash on hand and cash expected to be generated from future operating activities will be sufficient to fund our operations, including further research and development and capital expenditures for the next 12 months. We believe the FREEDOM60®FREEDOM System continues to find a solid following in the subcutaneous immune globulinSCIg market, and this market is expected to continue to increase both domestically and internationally. In addition, we expect many of the SCIg providers, and others, will see benefit in using the FREEDOM System for additional uses such as antibiotics, chemotherapeutics, and pain medications.
We continue to be in litigation with a competitor, EMED Technologies Corp. (“EMED”) and have incurred a significant amount of legal fees in connection with that process. Although the Company believes it has meritorious claims and defenses in the 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.
- 1214 -
On September 30, 2015, RMS’s Board of Directors authorized a stock repurchase program pursuant to which the Company willto make open market purchases of up to 1,000,0002,000,000 shares of the Company’s Outstanding Common Stock. The purchases will beare 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 May 31, 2016,June 30, 2017, the Company had repurchased 183,406396,606 shares at an average price of $0.45 under the program. The management of the Company decided to discontinue repurchasing its outstanding common stock under the program for an undetermined period of time to utilize cash for capital investments needed to expand the business.
RMS HIgH-Flo™ Subcutaneous Safety Needle Sets have clearance for sale in Europe, Canada and the U.S. We believe that the RMS administration sets represent an improvement in performance and safety over competitive devices on the market. We believe we have sufficient resources to continue marketing the needle sets domestically and internationally.
Cash Flows
The following table summarizes our cash flows:
|
| Three Months Ended |
| Three Months Ended |
|
| Four Months Ended |
| Four Months Ended |
| ||||
Net cash (used in) provided by operating activities |
| $ | (262,181 | ) | $ | 11,101 |
| |||||||
Net cash used in operating activities |
| $ | (236,636 | ) | $ | (544,137 | ) | |||||||
Net cash used in investing activities |
|
| (78,015 | ) |
| (97,700 | ) |
| $ | (74,761 | ) | $ | (103,634 | ) |
Net cash used in financing activities |
|
| (1,105 | ) |
| — |
|
| $ | (19,360 | ) | $ | (1,105 | ) |
Operating Activities
Net cash used in operating activities of $0.3$0.2 million for the threefour months ended May 31,June 30, 2017 was primarily attributable to our increase in accounts receivable of $0.4 millionand a decrease in accounts payable of $0.5 million mostly due to the payment of legal fees accrued for at February 28, 2017. Partially offsetting these items were the net income of $0.4 million, non-cash charges of $0.1 million for depreciation and amortization of long lived tangible and intangible assets and a decrease in income tax receivable of $0.2 million.
Net cash used in operating activities of $0.6 million for the four months ended June 30, 2016 was primarily attributable to the operating loss of $0.2 million, an increase in accounts receivable of $0.4 million, an increase in prepaid expense of $0.2$0.1 million mostly for business and property insurance renewals and a decrease indue to an income tax liabilityreceivable of $0.1 million due to the loss in the quarter,period, all partially offset by non-cash charges of $70,156$0.1 million for depreciation and amortization of long lived tangible and intangible assets, $7,000 of deferred compensation costs, stock based compensation expense of $50,950$69,714 and an increase in accounts payable of $0.3$0.2 million mostly due to raw material purchases and legal fees.
Net cash provided by operating activities of $11,101 for the three months ended May 31, 2015 was primarily attributable to a decrease in accounts receivable, an increase in accounts payable and accrued payroll due to business and property insurance renewals and a severance accrual related to our reorganization efforts, non-cash charges of $64,719 for depreciation and amortization of long lived tangible and intangible assets and $7,000 of deferred compensation costs, offset by an increase in inventory due to an initial purchase of raw materials from an overseas vendor, an increase in prepaids for business and property insurance renewals and our net loss of $64,640.
Investing Activities
Our net cash used in investing activities of $0.1 million for the threefour months ended May 31,June 30, 2017 and June 30, 2016 and $0.1 million for the three months ended May 31, 2015 werewas primarily attributable to our continued investment in capital expendituresassets mostly related to production and for new patent costs.applications and maintenance of existing patents.
NON-GAAP FINANCIAL MEASURESFinancing Activities
ManagementOur net cash used in financing activities was $19,360 and $1,105 for the four months ended June 30, 2017 and June 30, 2016, respectively, both the result of the Company believes that investors’ understandingrepurchase of shares of the Company’s performance is enhanced by disclosing non-GAAP financial measures as a reasonable basis for comparison of the Company’s ongoing results of operations. These non-GAAP measures should not be considered a substitute for GAAP-basis measures and results. Our non-GAAP measures may not be comparable to non-GAAP measures of other companies. The table below provides a disclosure of these non-GAAP financial measures to the most closely analogous measure determined in accordance with GAAP.common stock.
Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material effect on our reported results and, therefore, should not be relied upon as the sole financial measures to evaluate our financial results. The non-GAAP financial measures are meant to supplement, and to be viewed in conjunction with, GAAP financial results.
- 13 -
We disclose and discuss EBITDA as a non-GAAP financial measure in our public releases, including quarterly earnings releases, and other filings with the Commission. We define EBITDA as earnings (net income) before interest, income taxes, depreciation and amortization. We believe that EBITDA is used by investors and other users of our financial statements as a supplemental financial measure that, when viewed with our GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We also believe the disclosure of EBITDA helps investors meaningfully evaluate and compare our cash flow generating capacity from quarter to quarter and year to year. EBITDA is used by management as a supplemental internal measure for planning and forecasting overall expectations and for evaluating actual results against such expectations. Because management uses EBITDA for such purposes, the Company uses EBITDA, adjusted for certain items, as a significant criterion for determining the amount of annual cash incentive compensation paid to our executive officers and employees. We have historically found that EBITDA is superior to other metrics for our company-wide cash incentive program, as it is more easily explained and understood by our typical employee.
A reconciliation of our non-GAAP measures is below:
Reconciliation of GAAP Net Loss | Three Months Ended May 31, |
| ||||
to Non-GAAP Normalized EBITDA: | 2016 |
| 2015 |
| ||
GAAP Net Loss | $ | (233,314 | ) | $ | (64,640 | ) |
Tax Benefit |
| (119,901 | ) |
| (32,797 | ) |
Depreciation |
| 70,156 |
|
| 64,719 |
|
Professional Fees (1) |
| 618,144 |
|
| — |
|
Non-GAAP Normalized EBITDA | $ | 335,085 |
| $ | (32,718 | ) |
|
|
| ||||
|
|
| ||||
Reconciliation of GAAP Net Loss | Three Months Ended May 31, |
| ||||
to Non-GAAP Normalized Net Income: | 2016 |
| 2015 |
| ||
GAAP Net Loss | $ | (233,314 | ) | $ | (64,640 | ) |
Professional Fees (1) |
| 618,144 |
|
| — |
|
Tax Expense on Professional Fees |
| (209,977 | ) |
| — |
|
Non-GAAP Normalized Net Income | $ | 174,853 |
| $ | (64,640 | ) |
__________
(1) Includes consulting and professional fees related to regulatory and litigation.
OUR PRODUCTSFDA
RMS ishad an inspection by the FDA in June 2015, which included, among other items, a cutting edge medical device manufacturer, collaborating closely within the industry to develop products with a focus on improving the livesreview of its patients. RMS’ unique infusion delivery system is improving thecustomer complaints, quality of life of more than 15,000 patients around the world. Many patients will need to be on their life saving therapy for the rest of their lives, with a number of patients having safely used RMS’ home care FREEDOM infusion system for more than 10 years.
RMS’ innovative pumps, flow controlled tubingcontrols, quality assurance and subcutaneous needle sets ensure these patients continue to experience their often weekly infusionsdocumentation. The FDA inspection was then expanded as a non-event with no adverse reactions. The Company’s system gives patients the ability to continue with their daily activities with its easy to use, wearable and portable system. RMS reliesconsequence of an extensive “trade complaint” filed on proven scientific principles to innovate and develop mechanical infusion systems by embracingbehalf of a culture of continuous improvement. At RMS Medical Products, patients always come first,competitor which is why health care professionals recommend the use of the FREEDOM system for most patientsresulted in the U.S. market.
There isissuance of an FDA FORM 483. Eight months later, on February 29, 2016 we received a steady increase in patients being diagnosedWarning Letter. The Company responded and replied numerous times to the Warning Letter from March 18, 2016 on, and underwent a follow up inspection on November 29, 2016. On December 16, 2016, the FDA issued another FDA FORM 483, to which the Company provided a written response on January 9, 2017 and provided a supplemental response on March 17, 2017 and April 24, 2017. On April 25, 2017, RMS met with diseases that are remedied by the medicines that RMS’ FREEDOM system delivers,FDA Center for Devices and Radiological Health (“CDRH”) Compliance team and the Company is well-positionedNew York District Office to continuediscuss the final resolution of Warning Letter closure. On May 23, 2017, the Compliance Office of CDRH issued a letter to gain market shareRMS to acknowledge that RMS had successfully addressed all quality and help impacted patients gain “freedom”regulatory issues cited in their lives. Moreover,the Warning Letter. Prior to closing the Warning Letter, the FDA also needs to complete its review of our premarket submission (a pending 510(k)), which was accepted for review on May 17, 2017. On June 30, 2017, RMS received a written response regarding our pending 510(k) submission, and RMS is poised to expand its product distribution internationally in the near future. Steady U.S. growth forecasts and significant international opportunities ensure that RMS will continue its profitable revenue growth.
- 14 -
FREEDOM60 SYRINGE INFUSION SYSTEM
The FREEDOM60 Syringe Infusion System (“FREEDOM60”), comprised of the FREEDOM60 Syringe Infusion Pump and RMS Precision Flow Rate Tubing™, is designed for ambulatory medication infusions. For the home care patient, FREEDOM60 is an easy-to-use, lightweight mechanical pump using a 60ml syringe, completely portable and maintenance free, with no batteries to replace. FREEDOM60 offers increased safety, greater reliability and an overall higher quality infusion. For the infusion professional, FREEDOM60 delivers accurate infusion rates and class-leading flow performance. For the home infusion provider, FREEDOM60 is a cost-effective alternative to replace electronic and disposable pumps. Given FREEDOM60’s lower acquisition and operating costs, it frees up significant working capital for growing the Company’s infusion businesses.
The FREEDOM60 operates in “dynamic equilibrium,” which means the pump operates at a safe, low pressure and maintains a balance between what a patient’s subcutaneous tissues are able to manage and what the pump infuses. This balance is created by a safe, limited and controlled pressure, which adjusts the flow rate automatically to the patient’s needs providing a reliable, faster and more comfortable administration with fewer side effects for those patients. Electronic devices will increase infusion pressure while attempting to continue an infusion at the programmed rate, while the FREEDOM60 design maintains a safe, constant pressure and thereby automatically reduces the flow rate as required, if problems of administration occur.
Ambulatory infusion pumps are most prevalent in the outpatient and home care market although RMS believes there is potential in the hospital setting as well. Applications for the FREEDOM60 have been expanded to a wide spectrum by the medical and nursing communities due to its unique constant flow design, fluid dynamics functionality and safety profile. The usage includes the infusion of specialized drugs such as Immunoglobulin G (“IgG”), pain control and chemotherapy. Applications are also being increased for intravenous antibiotics including the widely used yet challenging to administer Vancomycin, and beta lactams which require longer infusion times as a part of antimicrobial stewardship. In Europe, RMS has observed additional patient success with the useOffice for Device Evaluation of CDRH to address those questions in order receive the FREEDOM60 for pain control, specifically post-operative epidural pain administration.
The FREEDOM60 provides a high-quality delivery to the patient at costs comparable to gravity-driven infusions and is designed for the home health care industry, patient emergency transportation and for any time a low-cost infusion is required. RMS continues to meet milestones in building a product franchise with FREEDOM60 and the sale of RMS Precision Flow Rate Tubing. This positions the Company well to expand on the technology of dynamic equilibrium for other home infusion devices.
In March, 2015, at the National Home Infusion Association Show in Phoenix, Arizona, RMS introduced the FreedomEdge™ Syringe Infusion Pump (“FreedomEdge”). The FreedomEdge uses all of the trusted technology of the FREEDOM60 in a new, smaller package ideal for use with 20ml or 30ml syringe sizes. Similar to the FREEDOM60, the FreedomEdge utilizes the existing RMS Precision Flow Rate Tubing and provides a great alternative and benefits to the patients who do not need the larger dose capacity.
RMS HIGH-FLO™ SUBCUTANEOUS SAFETY NEEDLE SETS
RMS HIgH-Flo Subcutaneous Safety Needle Sets (“HIgH-Flo”) are designed for self-administration of medicine under the skin. RMS’ needles feature unique design elements specific to subcutaneous self-administration, including a 5-bevel back-cut needle designed for more comfort and less tissue damage. Its needle set design permits drug flows which are the same or faster than those achieved with larger gauge needles currently on the market. This proprietary fluid dynamics engineering, compatible with the FREEDOM60 and FreedomEdge, guarantees the sensitivity of the system’s dynamic equilibrium.
Reflecting RMS’ dedication to clinician safety, the sets’ butterfly wing closures encase needles after use and help to protect against accidental needle stick injuries, an area of concern to the medical community. The sets are called safety needle sets to reflect this integral feature.
The Company expanded the range of HIgH-Flo sets available, including a 24 gauge set for very high flow rates, to meet the delivery demands of new drugs on the market. HIgH-Flo sets are also being used in clinical trials worldwide for a number of medications and therapies.510(k) clearance as expeditiously as possible.
- 15 -
RES-Q-VAC® PORTABLE MEDICAL SUCTIONOn April 19, 2017, the FDA renewed our Certificate to Foreign Government which is used to communicate to foreign governments that the FDA certified that RMS meets good manufacturing practices and quality system regulations.
The RES-Q-VAC Portable Medical Suction System (“RES-Q-VAC”)Although the Company is a lightweight, portable, hand-operated suction device that removes fluids from a patient’s airway by attaching the RES-Q-VAC pump to various proprietary sterile and non-sterile single-use catheters sized for adult and pediatric suctioning. The bottom-hinged, one-hand operation makes it extremely effective and the product is generally found in emergency vehicles, hospitals, disaster kits, mass casualty trailers and wherever portable aspiration is a necessity, including backup support for powered suction systems. Additional markets include nursing homes, hospice, sub-acute, dental and military applications. The Full Stop Protection® filter and disposable features of the RES-Q-VAC reduce the risk of exposing the health professional to human immunodeficiency virus (“HIV”) or Tuberculosis (“TB”) when suctioning a patient or during post treatment cleanup. All of the parts that connect to the pump are disposable.
A critical component and significant advantage of the RES-Q-VAC system is our Full Stop Protection® filter, a patented filtering system that both prevents leakage and overflow of the aspirated fluids, even at full capacity, and traps many air- and fluid-borne pathogens and potentially infectious materials within the sealable container. This protects users from potential exposure to disease and contamination. Full Stop Protection meets the requirement of the Occupational Safety and Health Administration (“OSHA”) ‘Occupational Exposure to Blood Borne Pathogens” Code of Federal Regulations 29 1910.1030. The Company has received a letter from OSHA confirming that the RES-Q-VAC with Full Stop Protection falls under the engineering controls of the blood borne pathogen regulation and that the product’s use would fulfill the regulatory requirements.
The Centers for Disease Control (“CDC”) and World Health Organization continue to emphasize the importance of minimizing aerosol production during suctioning, in order to reduce the spread of pandemic and epidemic diseases such as Ebola and Influenza. At the current time, we believe that the RES-Q-VAC with Full Stop Protection is the only portable, hand-operated device to comply with CDC directives from 2003.
Hospitals are required under the Emergency Medical Treatment and Labor Act (“EMTALA”) regulations to provide emergency treatment to patients anywhere in the primary facility and up to 250 yards away. The RES-Q-VAC ensures full compliance with these regulations and helps minimize unfavorable outcomes and potential lawsuits. We provide special hospital kits, which are fully stockedattempting to meet all hospital applications, both adult and pediatric.
RMS is actively pursuing a direct sales effort into the hospital market, working with direct sales and several regional distributors in the respiratory market. It is also working internationally with distributors who are well represented in the hospital and emergency markets.
ON-LINE CALCULATOR
In March 2016, the Company introduced its new On-Line Calculator, a tool to help determine which of the Company’s Precision Flow Rate TubingFDA requirements, we cannot be certain that our actions will be deemed satisfactory by the FDA and RMS HIgH-Flo Subcutaneous Needle Sets to use based on the medication being administered and desired time of infusion. Customers responded well to the new calculator and expressed that the new format of the On-Line Calculator, which can be used on any computer, tablet or mobile device, was easy to use and very helpful.
COMPETITION
The FREEDOM60
Competition for the FREEDOM60 for IgG includes electrically powered infusion devices, which are more costly and can create high pressures during delivery, which can cause complications for the administration of IgG. However, there can be no assurance that other companies, including those with greater resources, will not enter the market with competitive products which willthis could have ana material adverse effect on our sales.
There is the potential for new drugs to enter the market which might change the market conditions for devices such as the FREEDOM60Company’s business, results of operations, financial condition and RMS HIgH-Flo Subcutaneous Safety Needle Sets (e.g. Hyaluronidase, which can facilitate absorption of IgG, making multiple site infusions unnecessary). We believe dynamic equilibrium (the principle behind the FREEDOM60) is ideal for new drug combinations, and that they might increase the size of the subcutaneous market, but there can be no assurance that newer drugs will have the same needs and requirements as the current drugs being used.
We are currently involved in legal proceedings with a competitor who has been offering accessories that can be used with the FREEDOM60 (see Part II, Item 1 – Legal Proceedings).
- 16 -
The RES-Q-VAC
We believe that the RES-Q-VAC is currently the performance leader for manual, portable suction instruments. In the emergency market, the primary competition is the V-VAC™ from Laerdal Medical. The V-VAC™ is more difficult to use, cannot suction infants, and cannot be used while wearing heavy gloves such as in chemical warfare or in the extreme cold. Another competitor is the Ambu® Res-Cue Pump™, a lower-cost product similar to our design, made in China. We believe that the product is not as well made, as ergonomic, nor as versatile, and may not be purchased by the military segment of the market due to lines of supply concerns. We believe that Full Stop Protection substantially separates the RES-Q-VAC from competitive units, which tend to leak fluid when becoming full or could pass airborne pathogens during use. There is a heightened concern from health care professionals concerning exposure to disease and we believe the RES-Q-VAC provides improved protection for these users.cash flows.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09—Compensation-Stock Compensation (Topic 718), which provides clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update affect any entity that changes the terms or conditions of a share-based payment award. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.
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 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. We currently anticipate adopting the new standard using the modified retrospective method beginning January 1, 2018. 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. In May 2016, FASB issued ASU No. 2016-12—Revenue from Contracts with Customers (Topic 606); Narrow-Scope Improvements and Practical Expedients;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 Company is assessingeffective date and transition requirements for the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.amendments in
- 16 -
this update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by update 2014-09). In MayDecember 2016, the FASB issued ASU No. 2016-112016-20 Technical Corrections and Improvements to Topic 606, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815); Rescissionfrom Contracts with Customers, which represents changes to make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. This update is the final, combined version of SEC Guidance Because ofProposed Accounting Standards Updates 2014-092016-240 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting,2016-320 (both entitled Technical Corrections and Improvements), which is rescinding certain SEC Staff Observer comments that are codified in Topic 605, Revenue Recognition, and Topic 932, Extractive Activities—Oil and Gas, effectivehave been deleted. Based upon adoption of Topic 606. The Company doesour initial evaluation, we do not expect the adoption of the ASUstandard and related amendments to have any impacta material effect on itsour financial statements.condition or results of operations.
In March 2016, the Financial Accounting Standards Board (“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.
- 17 -
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 on our financial statements, disclosure requirements and expect it willmethods of adoption.
The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material impacteffect on our consolidated financial condition andor results of operations upon adoption.
In July 2015, the FASB issued Accounting Standards Update (“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.operations.
PART I – ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
PART I – ITEM 4. CONTROLS AND PROCEDURES.
The Company’s management, including the Company’s Principal Executive Officer and ChiefPrincipal Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as such is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluations, the Principal Executive Officer and ChiefPrincipal Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its Principal Executive Officer and ChiefPrincipal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in the Company’s internal control over financial reporting during the quarter ended May 31, 2016,June 30, 2017, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In 2013, the Company commenced in the United States District Court for the Eastern District of California a declaratory judgment action against competitor, EMED Technologies 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. 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 challenging RMS’s compliance with that order. RMS will be opposing that motion. On March 24, 2016, EMED filed a motion for a second preliminary injunction regarding sales of RMS products in California. The Company opposed that motion, which is still pending. Discovery is ongoing.
- 18 -
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 requested that the Texas suit be transferred to California. Also, based on a validity review of the patent in the U.S. Patent and Trademark Office (USPTO), discussed below, the Company requested the Texas suit 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.
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. A decision to institute the 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. Both the ex parte reexamination and the inter partes review are ongoing.
Although the Company believes it has meritorious claims and defenses in these litigations and proceedings, their outcomes cannot be predicted with any certainty.
ITEM 1A. RISK FACTORS.
Not required for smaller reporting companies.
PART II – ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On October 21, 2015, the Board of Directors of the Company approved non-employee director compensation of $25,000 each annually, to be paid quarterly half in cash and half in common stock, effectivebeginning September 1, 2015. Beginning March 1, 2016, all Directors, excluding Mr. Andrew Sealfon,The number of shares to be issued each quarter is calculated based upon the Company’s Chief Executive Officer, will receive director compensation.closing price of the common stock on the last day of each fiscal quarter as reported by the OTCQX. The Company issued an aggregate of 44,118 shares of common stock to its non-employee directors during the four month period ended June 30, 2017.
On SeptemberAs of June 30, 2015, RMS’s Board of Directors authorized a stock repurchase program pursuant to which2017, the Company will make open market purchasesissued an aggregate of up to 1,000,00013,555 shares of common stock to Dr. Fred Ma, its Chief Medical Officer, under the Company’s Outstanding Common Stock. terms of his employment agreement.
- 17 -
The purchases will be made through a broker to be designatedfollowing table provides information regarding repurchases by the Company with price, timing and volume restrictions based on average daily trading volume, consistent withof its common stock during the safe harbor rulesthree month period ended June 30, 2017:
Issuer Purchases of the Securities and Exchange Commission for such repurchases. As of May 31, 2016, the Company had repurchased 183,406Common Stock
|
|
|
|
|
| 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 (2) |
| Per Share |
| Plan (3) |
| Under the Plan (3) |
| |
March 1, 2017 – March 31, 2017 |
| — |
|
| — |
| — |
| 1,603,394 |
|
April 1, 2017 – April 30, 2017 |
| — |
|
| — |
| — |
| 1,603,394 |
|
May 1, 2017 – May 31, 2017 |
| 44,000 |
| $ | 0.44 |
| — |
| 1,603,394 |
|
June 1, 2017 – June 30, 2017 |
| — |
|
| — |
| — |
| 1,603,394 |
|
Total |
| 44,000 |
| $ | 0.44 |
| — |
|
|
|
__________
(1) | Monthly information is presented by reference to the Company’s fiscal months for the four months ended June 30, 2017. |
(2) | In May 2017, the Company repurchased 44,000 shares of the Company’s common stock owned by two terminated employees at an aggregate purchase price of $19,360. |
(3) | On September 30, 2015, RMS’s Board of Directors authorized the Company to make open market purchases of up to 2,000,000 shares of the Company’s Outstanding Common Stock. The purchases are made through a broker designated by the Company, with price, timing and volume restrictions based on average daily trading volume, consistent with the rules of the Securities and Exchange Commission for such repurchases. As of June 30, 2017, the Company had repurchased 396,606 shares at an average price of $0.45 under the program. The management of the Company decided to discontinue repurchasing its outstanding common stock under the program for an undetermined period of time to utilize cash for capital investments needed to expand the business. There is no expiration date to the program. |
On September 30, 2015, the Board of Directors also approved the 2015 Stock Option Plan authorizing the Company to grant awards to certain employees under the plan at fair market value, subject to shareholder approval.which was approved by shareholders at the Annual Meeting held on September 6, 2016. The total number of shares of common stock of the Company, par value $0.01 per share (“Common Stock”),Stock, with respect to which awards may be granted pursuant to the Plan, shall not exceed 2,000,0004,000,000 shares. As of May 31, 2016, the Company awardedJune 30, 2017, there were outstanding 1.1 million options awarded to certain executives, and key employees and advisory board members under the plan.Plan.
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 forAll of the FREEDOM60® Syringe Infusion System. Authorizedsecurities issued by the BoardCompany as described in this Item were issued in reliance on the exemption from registration under Section 4(2) under the Securities Act 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.1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
- 19 -
PART II – ITEM 6. EXHIBITS.
* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.
- 18 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| REPRO MED SYSTEMS, INC. |
|
|
| /s/ Andrew I. Sealfon |
| Andrew I. Sealfon, President, Chairman of the Board, Director, Chief Executive Officer |
|
|
| /s/ Karen Fisher |
| Karen Fisher, Chief Financial Officer and Treasurer |
- 2019 -