UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-K


x☒  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended February 29, 2016fiscal year ended December 31, 2018


OR

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

Commission File Number 0-12305


REPRO MED SYSTEMS, INC.

(Exact Namename of Registrantregistrant as Specifiedspecified in its Charter)charter)


NEW YORK

 

13-3044880

(State or Other Jurisdiction of Incorporation or Organization)

 

(IRS Employer Identification No.)

 

 

 

24 CARPENTER ROAD, CHESTER, NY

 

10918

(Address of Principal Executive Offices)principal executive offices)

 

(Zip Code)


(845)-469-2042

Registrant’s Telephone Number, Including Area Code


Securities registered pursuant to Section 12(b) of the Act: None


Securities registered pursuant to Section 12(g) of the Act: None


COMMON STOCK, $.01 PAR VALUE

(Title of Class)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o☐  No x☒


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐  No x☒


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 pastpreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒  No o☐


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 o☐


Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter), is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this formForm 10-K or any amendment to this Form 10-K.o ☐


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


Large accelerated filero ☐

Accelerated filero ☐

Non-accelerated filero ☐

Smaller reporting companyx ☒

Emerging growth 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 Act). Yes o☐  No x☒


Based on the closing sales price of August 31, 2015,June 29, 2018, the aggregate market value of the voting and nonvoting common equity held by non-affiliates of the registrant was $10,424,264.$34,674,892.


The number of issued and outstanding shares of the registrant’s common stock, $.01$0.01 par value was 37,966,50138,204,594 at May 13, 2016,March 5, 2019, which excludes 2,521,0312,737,231 shares of Treasury Stock.



REPRO MED SYSTEMS, INC.

FORM 10-K

INDEX


 

 

Page

 

 

 

PART I

 

 

 

 

 

Item 1.

Business

3

 

 

 

Item 1A.

Risk Factors

97

 

 

 

Item 1B.

Unresolved Staff Comments

917

 

 

 

Item 2.

PropertyProperties

917

 

 

 

Item 3.

Legal Proceedings

918

 

 

 

Item 4.

Mine Safety Disclosures

1019

 

 

 

PART II

 

 

 

 

 

Item 5.

Market for the Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities

1019

 

 

 

Item 6.

Selected Financial Data

1120

 

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1120

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

1628

 

 

 

Item 8.

Financial Statements and Supplementary Data

1628

 

 

 

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosures

3042

 

 

 

Item 9A.

Controls and Procedures

3042

 

 s

 

Item 9B.

Other Information

3043

 

 

 

PART III

 

 

 

 

 

Item 10.

Directors, Executive Officers, and Corporate Governance

3143

 

 

 

Item 11.

Executive Compensation

3243

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

3343

 

 

 

Item 13.

Certain Relationships and Related Transactions and Director Independence

3444

 

 

 

Item 14.

Principal Accountant Fees and Services

3444

 

 

 

PART IV

 

 

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

3544

Item 16.

Form 10-K Summary

45

 

 

 

Signatures

3646


- 2 -


PART I


Throughout this report, “RMS,” the “Company,” “we,” “us” and “our” refer to Repro Med Systems, Inc.


FORWARD LOOKING STATEMENTS


This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “believe”, “plan,” “goal,” “seek,” “vision”, “confident,” “future,” “will” and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding our ability to achieve our goals set forth in our Strategic Plan and under “Our Strategy” in Management’s Discussion and Analysis of Results of Operations under Item 7 of this Form 10-K and to defend pending litigation claims.  Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, readers should not rely on any of these forward-looking statements.


Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”).


Any forward-looking statement made by us in this Annual Report on Form 10-K is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.


ITEM 1. BUSINESS


OUR BUSINESS


REPRO MED SYSTEMS, INC., d/b/a RMS Medical Products (“REPRO MED,” “RMS Medical Products,” “RMS”, the “Company” “our” or the “Company”“we”), designs, manufactures and markets proprietary and innovative portable medical devices, primarily for the ambulatory infusion market and emergency medical applications in compliance with the United States Food and Drug Administration (the “FDA”) quality and regulatory system and international standards for quality system management. The Company’sOur development and marketing focus is primarily concentrated on our mechanical infusion products, the FREEDOM Infusion Systems (which we refer to as the “FREEDOM System” when used with one or more accessories), which include the FREEDOM60® Syringe Infusion System and accessories, RMS HIgH-Flo™Driver, the FreedomEdge® Syringe Driver, HIgH-Flo Subcutaneous Safety Needle SetsSets™ and the RES-Q-VAC® Portable Medical Suction System.RMS Precision Flow Rate Tubing™.  The Company was incorporated in the State of New York in March 1980.


OUR PRODUCTSMISSION


RMSOur mission is a cutting edge medical device manufacturer, collaborating closely within the industry to develop products with a focus on improving the lives of its patients.  RMS’ unique infusion delivery system is improvingimprove the quality of life of more than 15,000 patients around the world.  Many patients will needworld through the development and delivery of high quality, innovative and easy to use therapeutic solutions.


We strive to be on their life saving therapy for the rest of their lives, with a number of patients having safely used RMS’ home care FREEDOMbest specialty infusion system partner providing a proprietary drug and fluid delivery system for more than 10 years.


RMS’ innovative pumps, flow controlled tubinghome or alternate site settings where performance, reliability, ease of use and subcutaneous needle sets ensure these patients continue to experience their often weekly infusions as a non-event with no adverse reactions.  The Company’s system gives patientscost effectiveness are driving influencers.  Our easy-to-use, lightweight and portable FREEDOM System allows the abilitypatient to continue with their daily activities while receiving infusion therapy.  The patient experiences optimal therapy delivery using the innovative FREEDOM System with its easy to use, wearable and portable system.  RMS relies on proven scientific principles to innovate and develop mechanical infusion systems by embracing a culture of continuous improvement.  At RMS Medical Products, patients always come first, which is why health care professionals recommend the use of the FREEDOM system for most patients in the U.S. market.


There is a steady increase in patients being diagnosed with diseases that are remedied by the medicines that RMS’ FREEDOM system delivers, and the Company is well-positioned to continue to gain market share and help impacted patients gain “freedom” in their lives.  Moreover, 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.


FREEDOM60 SYRINGE INFUSION SYSTEM


The FREEDOM60 Syringe Infusion Systemdynamic equilibrium (“FREEDOM60”DynEqTM”), comprised of the FREEDOM60 Syringe Infusion PumpHIgH-Flo Subcutaneous Safety Needle Sets and RMS Precision Flow Rate Tubing™, is designedTubing.


OUR STRATEGY


In January 2019, the Board of Directors approved our strategic plan to become the preferred drug delivery partner for ambulatory medication infusions.  Forspecific infusion therapies in select markets.


- 3 -


The financial goals for our strategic plan through 2022 are:


•

$50 million net revenue run rate

•

70%+ gross margins, and

•

20%+  annual organic revenue growth


We are committed to delivering simple, effective, drug delivery systems to the home health care patient, FREEDOM60environment. We believe our Freedom Infusion Systems using DynEqTM technology is an easy-to-use, lightweight mechanical pump using a 60ml syringe, completely portablesuperbly positioned for Immunoglobulin therapy and maintenance free, with no batterieswe plan to replace. FREEDOM60 offers increased safety, greater reliabilitybuild on that platform. We plan to drive revenue by supporting the accelerating adoption of Hizentra®, Cuvitru® and an overall higher quality infusion.  Forother formulations for immunoglobulin therapy and participating in the infusion professional, FREEDOM60 delivers accurate infusion rates and class-leading flow performance. Formigration of other therapeutics into the home infusion provider, FREEDOM60 is a cost-effective alternativehealth marketplace globally. We expect to replace electronicleverage our specialty pharmacy customer base by bringing additional products and disposable pumps.  Given FREEDOM60’s lower acquisition and operating costs, it frees up significant working capital for growing the Company’s infusion businesses.services to our channel.


OUR PRODUCTS


FREEDOM SYSTEM


The FREEDOM System comprises the FREEDOM60 operates in “dynamic equilibrium,” which means the pumpSyringe Driver (60ml syringe compatible) and FreedomEdge Syringe Driver (30ml and 20ml syringe compatible), HIgH-Flo Subcutaneous Safety Needle Sets and RMS Precision Flow Rate Tubing. The systems are portable, maintenance free and do not require batteries or electricity.  The FREEDOM System operates at a safe, lowlower pressure than an electrical pump and maintains a balance between what a patient’s subcutaneous tissues are able to manageabsorb and what the pump infuses.  This balancesystem delivers, or what we refer to as “DynEq™”.


The FDA issued a 510(k) clearance for the RMS “Integrated Catch-Up Freedom Syringe Driver Infusion System,” which is createdour FREEDOM System, effective August 31, 2017, which includes the RMS Precision Flow Tubing and our HIgH-Flo Subcutaneous Safety Needle Sets.  The FREEDOM System is cleared by the FDA for a safe, limitedwide range of flow rates and controlled pressure, which adjustscertain medications for subcutaneous and intravenous indications, including specific clearance for leading immune globulins that include Hizentra® and Cuvitru® and a variety of antibiotics.  The FDA clearance includes the following Caution Statement, “In order to achieve specific and repeatable flow rate automatically toperformance with the patient’s needs providing a reliable, fasterFREEDOM Syringe Infusion Systems’ unique constant force mechanism, use only Freedom System accessories manufactured by RMS Medical Products …” and more comfortable administration“For use with fewer side effects for those patients.  Electronicsubcutaneous immune globulin products, use only RMS flow control 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 theHIgH-Flo Subcutaneous Safety Needle Sets, as use of generic products may result in unknown flow raterates and additional site complications such as required, if problems of administration occur.pain, swelling and redness.”


Ambulatory infusion pumpssystems 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 use of the FREEDOM60 for pain control, specifically post-operative epidural pain administration.


- 3 -


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.


alternate site markets.  The use of the FREEDOM60FREEDOM System for treatment of primary immune deficiencies by administering IgG under the skin, athrough subcutaneous administrationimmune globulin (“SCIg”), has continued administration continues to increase over the past several years and remains the market leading pumpdelivery system in the U.S. for these infusions.  ForThere is an expanded indication for Hizentra® for patients with Primary Immunodeficiency, Multifocal Motor Neuropathy, Idiopathic thrombocytopenic purpura and Chronic Inflammatory Demyelinating Polyneuropathy, this method has vastly improved qualitychronic inflammatory demyelinating polyneuropathy (“CIDP”) which is an acquired immune-mediated inflammatory disorder of life with much fewer unpleasant side effects experienced in comparison to the traditional intravenous route.  Thereperipheral nervous system. It is evidenceexpected that indications fornew SCIg therapy will continue to expand to other disease states. The FREEDOM60drugs may enter the market.  We believe the FREEDOM System is an ideal system for thisSCIg administration because:


·•

the patient is able to self-medicate at homeself-administer in any location;

·•

the pump is easily configured for this applicationapplication;

·•

it is the best value infusion system available in a heavily cost constrained marketmarket; and

·•

it has demonstrated ultimate effectiveness and an impeccable safety profile without any concernsprofile.


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-administrationa critical element of medicine under the skin. RMS’ needlesFREEDOM System, are available in 26 and 24 gauge sizes, and 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 achieveddamage 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’ dedicationflexible wings 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.


RES-Q-VAC® PORTABLE MEDICAL SUCTION


The RES-Q-VAC Portable Medical Suction System (“RES-Q-VAC”) 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 aminimize 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.


- 4 -


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 stocked to meet all hospital applications, both adult and pediatric.discomfort.


RMS Precision Flow Rate Tubing is actively pursuingdesigned for repeatable flow rates, and will not allow any free-flow, bolus or overdose of medication.  The tubing regulates the flow rate and infusion time for various applications when used with the FREEDOM System.  Each tubing set provides a direct sales effort intodifferent level of flow restriction and consistently delivers medication with low residual volume with 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.intent of minimizing drug waste.


ON-LINE CALCULATOR


In March 2016, the Company introduced its new On-LineWe have available online our RMS Freedom Flow Rate Calculator, a tool designed to help providers determine which of the Company’sRMS Precision Flow Rate Tubing and RMS HIgH-Flo Subcutaneous Safety Needle Sets to use based on the medication being administered and desired flow rate/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. 


- 4 -


SALES AND DISTRIBUTION


FREEDOM60 systems areThe FREEDOM System is sold domestically through both direct sales efforts concentrated on large national accounts and through a network of medical device distributors.  Mostdistributors, where the majority of our sales are generated.  We sell most of our products through a small number of distributors, three in and two outside the U.S. As of December 31, 2018, these five distributors comprised approximately 75% of our gross revenues. One distributor in the U.S. provides approximately 58% of our gross revenues. Specialty pharmacy customers purchase FREEDOM System products through distributors onefor inventory management and one-stop shopping convenience. In the U.S., physician’s prescriptions for SCIg are filled by specialty pharmacies and home infusion providers who also provide patient care and training in the patient’s home or home infusion facility via a network of which represents approximately 55.3%nurses. We continue our efforts to expand internationally with the majority of our total revenue.


Internationally, we have FREEDOM60 distributioncurrent international sales in Australia, Canada, Denmark, Estonia, Finland, France, Italy, Latvia, Lithuania, Norway, the Benelux countries, Saudi Arabia, South Africa, Germany, SwedenEuropean market and the United Kingdom.Kingdom where our products are sold via distributors. We believehave two distributors outside the U.S., one in the United Kingdom and one in Finland, that a single distributor in each country will be more predisposed to advertising, promoting, and buildingaccounted for approximately 11% of our gross revenues for the product franchise, and we work closely with our distributors to promote our products.  Since February 2014, we have employed a sales representative based in Sweden to expand our efforts to add distributors in other countries.  In October 2015, we hired an additional sales representative based in Germany.year ended December 31, 2018.


RES-Q-VAC is sold domesticallyWe provide education and internationally by emergency medical device distributors in approximately 25 countriestraining materials to clinicians, patients and represents about 5% of our revenue. These distributors generally sell to the end user and advertise these products in relevant publications and in their catalogs.  We also sell directly to some physician offices, hospitals and other institutional customers.  We market the hospital RES-Q-VAC system through regional distributors specializingpatient advocates both in the hospital respiratory care market.  Wefield and online.  Specialty pharmacies and home infusion providers are expanding support in international markets where we believe RES-Q-VAC has higher potential.our primary call point.


During the fiscal year, we have expanded our efforts to market both of our main product lines at national and international trade shows. We support shows attended by our primary customers such as MEDICA, Arab Health, EMS Today, National Home Infusion Association Conference, Infusion Nurses Society, European Society for Immunodeficiencies and the Immune Deficiency Foundation’s regional meetings.


MANUFACTURING AND RAW MATERIALS


Raw materials, consistingWe perform product assembly, calibration, pre- and post-assembly quality control inspection and testing, and final packaging for all of our products at our Chester, NY facility.


Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of components for our products. All of the components that go into the manufacturing of our products and accessories are sourced from third-party suppliers, and some of these components are provided by a single supplier including subassemblies from Command Medical Products, Inc., molded plastic parts from a supplier in Taiwan and tubing essential to our business are purchased from numerous suppliers worldwide in the ordinary course of business. Although most of these materials are generally available, we may at times experience shortages of supply. In an effort to manage risk associated with raw materials supply, we work closely with suppliers to help ensure availability and continuity of supply while maintaining high quality and reliability. The company also seeks to develop new and alternative sources of supply where beneficial to its overall raw materials procurement strategy.Natvar, a Tekni-Plex Co., Inc.


The Company also utilizes long-term supply contracts with some suppliers to help maintain continuity of supply and manage the risk of price increases. RMS is not always able to recover cost increases for raw materials through customer pricing due to contractual limits and market forces.


- 5 -


RESEARCH AND DEVELOPMENT


We recognize the importance of innovation and renovation to our long-term success and are focused on and committed to research and new product development activities.  Our product development team engagesalong with outside engineering resources is engaged in consumercontinuously improving existing product performance and researching new product opportunities to increase our pipeline. We spent $0.2 million on research productand development current product improvementfor the year ending December 31, 2018 and testing activities,$0.1 million for the year ending December 31, 2017. We intend to make additional investments in research and also leverages our development capabilities by partnering with a network of outside resources.over the next twelve months.


We recently completed developmentREGULATORY


Our medical devices and technologies, as well as our business activities, are subject to a complex set of regulations and rigorous enforcement, including by the U.S. Department of Justice, Health and Human Services-Office of the FreedomEdge, a smaller versionInspector General, and numerous other federal, state, and non-U.S. governmental authorities. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the FREEDOM60,development, testing, manufacturing, labeling, marketing and introduced it at the National Home Infusion Association show in Phoenix, AZ, in March, 2015.  There is no assurance that this product, or any others under development, will result in net revenue or profit increases for the Company.  At the National Home Infusion Association show in New Orleans, LA, in March 2016, the Company introduced its new On-Line Calculator, a tool to help determine whichdistribution of the Company’s Precision Flow Rate Tubing™ 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. 


QUALITY ASSURANCE


RMS’ success depends upon the quality of its products.  Our quality management system plays an essential role in determining and meeting customer requirements, preventing defects, facilitating continuous improvement of the Company’s processes, products and services, and assuring the safety and efficacy of the Company’sour products.


EachBoth before and after a product thatis commercially released, we market is requiredhave ongoing responsibilities under the FDA and other applicable non-U.S. government agency regulations. For instance, all medical devices marketed in the U.S. must be manufactured in accordance with the FDA’s quality system regulations.  Accordingly, our facility and procedures and those of our suppliers are also subject to meet specific quality standards, both in packaging and in product integrity and quality. If either of those is determinedperiodic inspections by the FDA to be compromised at any time, we take corrective and preventive actions designed to ensuredetermine compliance with regulatory requirementsapplicable laws and to meet customer expectations.


MARKETS


The domestic home infusion therapy market is comprised of approximately 4,500 sites of service, including local and national organizations, hospital-affiliated organizations, and national home infusion organizations, and produces approximately $9 - $11 billion in revenue annually*.  With insurance reimbursement for medical devices in decline, we believe that there is a need for a low-cost, effective alternative to electronic and expensive disposable intravenous (“IV”) administration devices for home care.


The ambulatory infusion market has been rapidly changing due to reimbursement issues.  Insurance reimbursement has drastically reduced the market share of high-end electronic type delivery systems as well as high-cost disposable non-electric devices, providing an opportunity for the FREEDOM60.  We believe market pressures have moved specialty pharmacies to consider alternatives to expensive electronic systems especially for new subcutaneous administrations, which usually cannot be done with gravity.  For cost concerns, some patients have been trained to administer intravenous drugs through IV push where the drug is pushed into the vein directly from a syringe.  This is a low-cost option but has been associated with complications and is considered by many to be a higher-risk procedure.  Thus, the overall trend has been towards syringe pumps due to the low-cost of disposables.


There is evidence that indications for SCIg therapy will continue to expand to other disease states.  Manufacturers of various IgG medications have conducted, and are in process of conducting, trials of their drugs for applications other than primary immune deficiency diseases.  To the extent that these trials are successful and the FDA approves these new indications for use, we could see additional sales opportunities in the future.


On May 21, 2010, the Department of Health and Human Services (“HHS”) announced the addition of Severe Combined Immune Deficiency (“SCID”), a primary immunodeficiency disease, to the recommended uniform screening of newborns. The Immune Deficiency Foundation (IDF) has strongly supported and worked tirelessly toward this goal for many years.  As of April 1, 2016, 37 states have added SCID to their uniform newborn screening**.  As more states add this screening, we could see additional sales opportunities in the future.  


*Ref: www.nhia.org/faqs.cfm and http://www.gao.gov/new.items/d10426.pdf

** Ref: http://primaryimmune.org/idf-advocacy-center/idf-scid-newborn-screening-campaign/


- 6 -


INSURANCE REIMBURSEMENT


There can be no assurance that Medicare will continue to provide reimbursement for the FREEDOM60.  They may allow reimbursement for other infusion pumps that are currently in the market or new ones that may enter shortly, which could adversely affect our sales into this market.


In order to receive more favorable Medicare reimbursement for the FREEDOM60, we submitted a formal request for a Healthcare Common Procedures Coding System (“HCPCS”) coding verification with the Statistical Analysis Durable Medical Equipment Regional Carrier (“SADMERC”).  It was the determination that the Medicare HCPCS code(s) to bill the four Durable Medical Regional Carriers (“DMERC’s”) should be: “E0779 Ambulatory infusion pump, mechanical, reusable, for infusion 8 hours or greater.”  This code provides reimbursement for the FREEDOM60 for billable syringe pump application approved by Medicare. Current approved uses under Medicare include among others, subcutaneous immune globulin, antivirals, antifungals, and chemotherapeutics.


Effects, if any, of the federal government’s Public Law 111-148, The Patient Protection and Affordable Care Act, on reimbursements for infusion pumps and related supplies and services cannot be stated with certainty at this time.


We are also closely watching for the effects of the Medicare Home Infusion Site of Care Act of 2015, which intends to amend the Social Security Act to allow the home to be a covered infusion site of care for Medicare beneficiaries.  If passed, it would take effect starting in 2016.  Currently, it appears the bill would encourage greater utilization of home infusion, increasing the potential market for FREEDOM60.


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 will have an 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 FREEDOM60 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 Item 3 – Legal Proceedings).


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.


GOVERNMENT REGULATION


Full Stop Protection meets the requirement of OSHA described below. 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 products use would fulfill the regulatory requirements.


- 7 -


OSHA 29 Code of Federal Regulations 1910.1030 - Occupational Exposure to Blood borne Pathogens requires that employers of “... emergency medical technicians, paramedics, and other emergency medical service providers; fire fighters, law enforcement personnel, and correctional officers ... must consider and implement devices that are appropriate [to contain blood borne pathogens], commercially available and effective.” These first responders risk exposure to serious disease, and the employers may risk OSHA violations and lawsuits if they fail to consider protective measures such as our Full Stop Protection for RES-Q-VAC.  The Company has received a letter from OSHA indicating that RES-Q-VAC meets the intent of this regulation.regulations.


The FDA governshas announced its intention to pursue comprehensive reforms to its current 510(k) clearance pathway, which is used for clearance of low- to moderate-risk devices that are substantially equivalent to a device already on the development and manufacturing of all medical products. The FDA requires us to register our manufacturing facility, list our devices, file notice of intent to market, new products, track the locations of certain products and to reportits post-market safety monitoring process.  We cannot predict with any incidents of death or serious injury relating to the products with the FDA. We could become subject to civil and criminal penalties and/or recall seizure or injunctions if we fail to comply with regulations of the FDA.certainty how these reforms may impact our business.  See ITEM 1A. RISK FACTORS.


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


Periodically we- 5 -


COMPETITION AND THE MARKET


Competition for the Freedom System includes electronic pumps, elastomeric pumps, and a mechanical pump.  Safety, ease of use, familiarity, cost effectiveness, accuracy, pressure, etc. are subjectdriving influencers of pump selection.  Electronic pumps deliver drugs at a programmed flow rate.  They are expensive and require electricity or batteries, extensive training and maintenance and must be programmed by a qualified pharmacist or clinician.  Elastomeric pumps are one-time-use balloon type devices used for infusion of drugs in intravenous (“IV”) applications.  Pharmacies are required to inspectionsfill them with drugs and audits by FDA inspectors and could be impacted by adverse findings. The last quality review by the FDA was in June 2015, which included, among other items, a review of complaints, quality controls, and documentation. The FDA inspection was expanded as a consequence of an extensive “trade complaint” which resulted in the issuance of an FDA FORM 483 in June 2015.   Eight months later, on February 29, 2016 we then received a Warning Letter.  The Company responded and replieddeliver them to the Warning Letter on March 18, 2016 and continuespatient.  They are easy to have correspondence and dialog withuse from the agency in order to satisfy allpatient point of FDA’s concerns cited in the Warning Letter.  The timeframe to close out all of the items in the letter with the FDA could take at least six months.  As explained by the FDA in its Regulatory Procedure Manual Chapter 4, an FDA Warning Letter “…is informal and advisory”; “does not commit FDA to taking enforcement action”; and “FDA does not consider Warning Letters toview but can be final agency action.”


The Company is International Organization for Standardization (“ISO”) 13845:2003 certified.  Our new registrar is BSI.


MANUFACTURING


The Company’s employees perform the following operations at the Company’s Chester, NY facility:  electromechanical assembly, calibration, pre- and post-assembly quality control inspection and testing, and final packaging for all products.  Products are assembled using molded plastic parts acquired from several U.S. vendors and two suppliers located in Taiwan.  We also have a contractor, operating in Nicaragua, which makes certain subassemblies that we subsequently incorporate into final products in our Chester, NY, facility.  The availability of parts has not been a problem. The costmore costly and time requiredconsuming to fabricate molds to manufacture partsfill, are temperature sensitive and have larger residual volumes than other delivery systems. Other mechanical pumps can slow the development of new products and might temporarily limit supply if we determine it is advisable to seek alternate sources of supply for existing products. Our policy has been tobe less expensive but can have multiple sources of supply, where practicable, that also offer mold-building capabilities as a service.larger residual volumes than ours.


EMPLOYEES


As of February 29, 2016,December 31, 2018, we had 5575 full time employees.


The Company carries insurance on the life of Andrew Sealfon, Chief Executive Officer, providing a death benefit of $3.1 million.employees and 1 part time employee.


PATENTS AND TRADEMARKS


We have filed and received U.S. and foreign protection for many of our products relating to infusion systems and inrelated components. We currently have twelve pending applications and four issued with expiration dates ranging from 2021 to 2031. In some cases where it was no longer deemed economically beneficial, we have allowed certain patent and/or trademark protections to lapse.  TheIn addition, the patent position of small companiesapplication process for both the U.S. and foreign countries is highly uncertain and involves complex legal and factual questions. issues that differ from country to country.Consequently, there can be no assurance that patent applications relating to products or technology will result in patents being granted or that, if issued, the patents will afford protection against competitors with similar technology.  Furthermore, some patent licenses held may be terminated upon the occurrence of certain events or become non-exclusive after a specified period. There can be no assurance that we will have the financial resources necessary to enforce any patent rights we may hold. See ItemITEM 3. Legal ProceedingsLEGAL PROCEEDINGS for details regarding our patent litigation.


EXECUTIVE OFFICERS


The following table sets forth certain information with respect to our executive officers as of March 5, 2019:


Name

Age

Position / Held Since

Donald B. Pettigrew

51

President and Chief Executive Officer (since February 2019)

President and Chief Commercial Officer (since September 2018)

Karen Fisher

52

Chief Financial Officer and Treasurer (since 2015)

Manuel Marques

46

Chief Operating Officer (since December 2018)

Daniel S. Goldberger

60

Executive Chairman (since February 2019)

Chairman of the Board (since July 2018)

Director (since April 2018)


Executive officers hold office at the discretion of the Board of Directors.


Mr. Pettigrew has more than 23 years of sales and business development experience in the medical device industry, including the home infusion space.  Prior to joining RMS in 2018, Mr. Pettigrew held senior leadership positions at market leading medical firms such as Moog, Inc. as Group Director, Global Business Development and Group Director, Global Sales and Professional Services from 2011 through 2018, where he led commercialization and business development for the IV infusion and enteral feeding franchises in both the U.S. and international markets.  Mr. Pettigrew also held management positions at Baxter (formerly Gambro) from 2008-2011, Boston Scientific from 1995-2008, and E&J Gallo from 1990-1995.  Mr. Pettigrew earned his B.A. in Biology from the University of Colorado.  


Ms. Fisher has more than 25 years of financial experience at a variety of industries.  Prior to joining RMS in 2015, Ms. Fisher was Assistant Controller, Senior Manager for Armored Autogroup, Inc., a worldwide consumer products company from February 2012 to January 2015.  Before joining Armored Autogroup, Inc., she spent seven years at Gilman Ciocia, Inc., where she served in a variety of financial roles, including Chief Accounting Officer and Treasurer, and, earlier, as Controller. Before Gilman Ciocia, Inc., she held multiple financial management roles at The New York Times Company and Thomson Financial.  Ms. Fisher is a Certified Public Accountant and a graduate of Arizona State University with a B.S. in accounting.


- 86 -


Mr. Marques has served as our Vice President of Operations and Engineering since February 2016, and joined RMS as Director of Manufacturing and Manufacturing Engineering in July 2015. Prior to joining RMS, Mr. Marques Served as Lean Manufacturing Champion at Nobel Biocare Procera LLC, a manufacturer of dental implants and CAD/CAM-based individualized prosthetics, from February 2013 until joining RMS. Mr. Marques has over 23 years of experience within the dental, medical device, and automotive industries, and holds two U.S. patents for cardiovascular medical devices. Mr. Marques obtained a B.S. in Mechanical Engineering Technology and also an M.S. in Engineering Management from the New Jersey Institute of Technology.


Mr. Goldberger has over 35 years of experience within the biotech, medical technology, and high tech industries.  His areas of expertise include mergers and acquisitions, capital formation, intellectual property, product development, supply chain, business analytics, and turnarounds.  Since January 2018, Mr. Goldberger has been the Chief Executive Officer of Synergy Disc Replacement Inc., a private company commercializing a proprietary total disc implant for cervical spine therapy.  From October 2017 to January 2018, Mr. Goldberger served as Chief Executive Officer of Milestone Medical, Inc.  Prior to this he served as the Chief Executive Officer of Xtant Medical Holdings, Inc. from August 2013 to January 2017. He also served as the Chief Executive Officer of Sound Surgical Technologies LLC from April 2007 to February 2013. Mr. Goldberger served on the boards of Xtant Medical Holdings, Inc., Sound Surgical, Xcorporeal and Glucon. He currently serves as an advisor to investment funds Meridian Capital and Wellfleet Capital. Mr. Goldberger earned his B.S. in Mechanical Engineering from M.I.T, his M.S. in Mechanical Engineering from Stanford University and attended the Stanford Directors College.



ITEM 1A. RISK FACTORS


Not applicable.RISK FACTORS


An investment in our common stock involves significant risks. Before making an investment in our common stock, you should carefully consider all of the information contained in this Annual Report on Form 10-K and our other filings with the SEC including the material risks and uncertainties that we have identified below. The risks and uncertainties identified below are not the only risks and uncertainties we face. If any of the material risks or uncertainties that we face were to occur, the trading price of our common stock could decline and you could lose part or all of your investment. Please note that additional risks not currently known to us or that we currently deem immaterial also may adversely affect our business, operations, results of operations, financial condition and prospects.


Risks Related to Our Business


We may be unable to compete successfully in our highly competitive industry.


We are a global company that faces competition from a wide range of international and domestic companies, including those that deliver electrically powered pumps, elastomeric infusers and other mechanical devices. These include large medical device companies with multiple product lines, some of which may have greater financial and marketing resources than we do.  We also face competition from companies that are even more specialized than ours with respect to particular markets or product lines. Some of those companies have greater financial and sales and marketing resources than we do or offer products at a lower price point than ours. We face competition on the basis of product features, clinical or economic outcomes, product quality, availability, price, services, technological innovation and other factors. In addition, we face changing customer preferences and requirements, changes in the ways health care services are delivered, including the transition of more care to non-acute settings. Competition may increase further as additional companies begin to enter our markets or modify their existing products to compete directly with ours. If we are forced to reduce our prices due to increased competition, our business could suffer.


The medical technology industry has also experienced a significant amount of consolidation, resulting in larger companies with greater access to markets. Health care systems, other health care companies and even retail pharmacies are also consolidating, resulting in greater purchasing power for these companies. As a result, competition among medical device suppliers to provide goods and services has increased. Group purchasing organizations and integrated health delivery networks have also served to concentrate purchasing decisions for some customers, which has led to downward pricing pressure for medical device suppliers. Further consolidation in the industry could intensify competition among medical device suppliers and exert additional pressure on the prices of our products.


- 7 -


Technological developments by others may disrupt our business and negatively impact our revenues.


The medical device industry is subject to rapid technological change and discovery and frequent product introductions. The development of new or improved products, processes or technologies by other companies (such as needle-free injection technology) that provide better features, pricing or clinical outcomes or economic value may render our products or proposed products obsolete or less competitive. If our competitors respond more quickly to new or emerging technologies and changes in customer requirements or we do not introduce new versions or upgrades to our product portfolio in response to those requirements, our products may not be marketable. If competitors develop more effective or affordable products, or achieve earlier patent protection or product commercialization for new products than we do, our operations will likely be adversely affected.


If we are unable to successfully introduce new products or fail to keep pace with advances in technology, our business, financial condition and results of operations could be adversely affected.


We need to successfully introduce new products to achieve our strategic business objectives. A significant element of our strategy is to increase revenue growth by investing in innovation and new product development, which will require substantial resources. Our successful product development will depend on many factors, including our ability to attract strong talent to lead our research and development efforts, properly anticipate and satisfy customer needs, adapt to new technologies, obtain regulatory approvals on a timely basis, demonstrate satisfactory clinical results, manufacture products in an economical and timely manner, obtain appropriate intellectual property protection for our products, gain and maintain market acceptance of our products, and differentiate our products from those of our competitors. In addition, patents attained by others can preclude or delay our commercialization of a product. There can be no assurance that any products now in development or that we may seek to develop in the future will achieve technological feasibility, obtain regulatory approval or gain market acceptance.  If we cannot successfully introduce new products or adapt to changing technologies, our products may become obsolete and our revenue and profitability could suffer.


Proposed changes to the FDA 510(k) clearance pathway and post-market safety monitoring process could adversely affect our ability to offer our new and existing products.


The FDA has announced its intention to pursue comprehensive reforms to its current 510(k) clearance pathway, which is used for clearance of low- to moderate-risk devices that are substantially equivalent to a device already on the market, and to its post-market safety monitoring process.  The proposals, among other things, could prevent the use of certain older predicate devices as support for 510(k) clearance, provide for a “de novo” classification process to permit an evaluation of novel devices without a predicate device, establish an alternative 510(k) pathway for “well-understood” devices relying on objective safety and performance criteria, and expand post-market safety surveillance measures.  These reforms could delay or prevent us from obtaining or maintaining 510(k) clearances or other premarket authorizations for our existing or new devices.  Compliance with the new rules could require us to undertake significant additional costs prior to and following commercialization of our products, which may reduce the profitability of those products.  


We are subject to costly and complex laws and governmental regulations and any adverse regulatory action may materially adversely affect our financial condition and business operations.


Our medical devices and technologies, as well as our business activities, are subject to a complex set of regulations and rigorous enforcement, including by the U.S. Department of Justice, Health and Human Services-Office of the Inspector General, and numerous other federal, state, and non-U.S. governmental authorities. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our products. We cannot guarantee that we will be able to obtain or maintain 510(k) clearance or premarket approval for our new products or enhancements or modifications to existing products, and the failure to maintain approvals or clearances, or obtain approval or clearance could have a material adverse effect on our business, results of operations, financial condition and cash flows. Even if we are able to obtain approval or clearance, it may:


•

take a significant amount of time

•

require the expenditure of substantial resources

•

involve stringent clinical and pre-clinical testing, as well as increased post-market surveillance

•

involve modifications, repairs, or replacements of our products, and

•

limit the proposed uses of our products.


- 8 -


Both before and after a product is commercially released, we have ongoing responsibilities under the FDA and other applicable non-U.S. government agency regulations. For instance, all medical devices marketed in the U.S. must be manufactured in accordance with the FDA’s quality system regulations.  Accordingly, our facility and procedures and those of our suppliers are also subject to periodic inspections by the FDA to determine compliance with applicable regulations. The results of these inspections can include inspectional observations on the FDA’s Form 483, warning letters, or other forms of enforcement. Additionally, as a manufacturer of medical devices, we are subject to annual registration and listing requirements, and associated user fees.  If the FDA were to conclude that we are not in compliance with any applicable laws or regulations, or that any of our medical products are ineffective or pose an unreasonable health risk, the FDA could deem our products adulterated or misbranded, and take enforcement action against us.  Possible enforcement actions include, but are not limited to:  banning such medical products; detaining or seizing all adulterated or misbranded medical products; ordering recall, repair, replacement, or refund of such products; refusing to grant pending pre-market approval or 510(k) clearance applications; and/or requiring us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. The FDA and other non-U.S. government agencies may also assess civil or criminal penalties against us, our officers or employees and impose operating restrictions on a company-wide basis. The FDA may also recommend prosecution to the U.S. Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products and limit our ability to obtain future pre-market clearances or approvals, and could result in a substantial modification to our business practices and operations.


In addition, the FDA has taken the position that device manufacturers are prohibited from promoting their products other than for the uses and indications set forth in the approved product labeling, and any failure to comply could subject us to significant civil or criminal exposure, administrative obligations and costs, and/or other potential penalties from, and/or agreements with, the federal government.


Regulations regarding the development, manufacture and sale of medical devices are evolving and subject to future change.We cannot predict what impact, if any, those changes might have on our business; however, failure to comply with applicable regulatory requirements could have a material adverse effect on our business, financial condition, and results of operations.


Governmental regulations outside the U.S. have, and may continue to, become increasingly stringent and common. In the European Union, for example, a new Medical Device Regulation was published in 2017 which, when it enters into full force in 2020, will include significant additional premarket and post-market requirements. Penalties for regulatory non-compliance could be severe, including fines and revocation or suspension of a company’s EU business license, mandatory price reductions and criminal sanctions. Future foreign governmental laws and regulations may have a material adverse effect on us.


Health care policy changes and industry cost-containment measures could result in downward pricing pressure for our products and limit our sales.


Most of our customers, and those to whom our customers supply medical devices, rely on third-party payers, including government programs and private health insurance plans, to reimburse some or all of the cost of the medical devices we manufacture. The continuing efforts of governmental authorities, insurance companies and other payers of health care costs to contain or reduce these costs and, more generally, to reform the health care system, could limit the prices we are able to charge for our products or the amounts of reimbursement available for our products or the drugs that they administer, which would put pressure on us to reduce our prices for our products and/or limit our sales. The adoption of some or all of these proposals could have a material adverse effect on our business, results of operations, financial condition and cash flows.


Our business depends on an adequate supply of drugs to be administered by our products.


Demand for our products depends on the availability of drugs to be administered by them.  Currently, most of our products require immunoglobulin therapies that rely on blood plasma collection for drugs such as Hizentra® and Cuvitru®. Any disruption in the supply of these drugs for any reason, including contamination, could significantly adversely affect our business.  The change of any drug indication by the FDA or comparable foreign governmental agencies could also result in decreased demand for our products. In addition, pharmaceutical companies and other competitors have or are developing alternative therapies for disease states that are deliverable without a medical device. If there is not an adequate supply of drugs requiring administration by medical devices such as those provided by us or alternative therapies are developed, our sales may suffer and/or our products may become obsolete.


- 9 -


Issues with product quality could have an adverse effect upon our business, subject us to regulatory actions, cause a loss of customer confidence in us or our products, among other negative consequences.


Quality management plays an essential role in determining and meeting customer requirements, preventing defects, improving our products and services and assuring the safety and efficacy of our products. Our future success depends on our ability to maintain and continuously improve our quality management program. While we have a quality system that covers the lifecycle of our products, quality and safety issues may occur with respect to any of our products. A quality or safety issue may result in adverse inspection reports, voluntary or official action indicated, warning letters, import bans, product recalls (either voluntary or required by the FDA or similar governmental authorities in other countries) or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions, costly litigation, refusal of a government to grant approvals and licenses, restrictions on operations or withdrawal of existing approvals and licenses. An inability to address a quality or safety issue in an effective and timely manner may also cause negative publicity, a loss of customer confidence in us or our current or future products, which may result in the loss of sales and difficulty in successfully launching new products.


Defects or quality issues associated with our products could adversely affect the results of our operations.


The design, manufacture and marketing of medical devices involve certain inherent risks. Manufacturing or design defects, component failures, unapproved or improper use of our products, or inadequate disclosure of risks or other information relating to the use of our products can lead to injury or other serious adverse events. These events could lead to recalls or safety alerts relating to our products (either voluntary or as required by the FDA or similar governmental authorities in other countries), and could result, in certain cases, in the removal of a product from the market. A recall could result in significant costs and lost sales and customers, enforcement actions and/or investigations by state and federal governments or other enforcement bodies, as well as negative publicity and damage to our reputation that could reduce future demand for our products. Personal injuries relating to the use of our products can also result in significant product liability claims being brought against us. A product liability claim, regardless of its merit or outcome, could not only result in significant legal defense costs, but also have a material adverse effect on our business and reputation and ability to attract and retain customers for our products.  In some circumstances, adverse events could also cause delays in regulatory approval of new products or the imposition of post-market approval requirements.


Interruption of our manufacturing operations could adversely affect our future revenues and operating income.


There is a strict regulatory regime governing our manufacturing operations. Variations in the manufacturing process may result in production failures which could lead to launch delays, product shortage, unanticipated costs, lost revenues and damage to our reputation. A failure to identify and address manufacturing problems prior to the release of products to our customers may also result in a quality or safety issue that could result in a recall or other inability to sell our products.


Our products are manufactured at a single manufacturing facility and stored at the manufacturing facility and a storage site in Chester, NY. Loss or damage to our manufacturing facility and storage site due to weather, vandalism, terrorism, a natural disaster, issues in our manufacturing process, equipment failure or other factors, could adversely affect our ability to manufacture sufficient quantities of products or otherwise deliver products to meet customer demand or contractual requirements which may result in a loss of revenue and other adverse business consequences, including damage to our relationship with customers. Because of the time required to approve and license a manufacturing facility, a third party manufacturer may not be available on a timely basis (if at all) to replace production capacity in the event we lose manufacturing capacity or products are otherwise unavailable due to natural disaster, regulatory action or otherwise.


We take precautions to safeguard our facility and storage site, including acquiring insurance, adopting health and safety protocols and utilizing off-site storage of computer data. Our insurance may not cover our losses in any particular case. In addition, regardless of the level of insurance coverage, damage to our facilities may harm our business, financial condition and operating results.


We may need a new manufacturing facility in order to expand our operations.


We currently have six options to extend our current lease of our manufacturing facility, which is also our headquarters, through August 2022.  Although we believe our current space is sufficient to significantly increase current production requirements, we may need to find a larger space for our manufacturing operations in order to expand our operations and carry out our business plan.  There is no guaranty we will be able to find such space on favorable terms, or at all.  If we do find appropriate space, we may need to expend significant resources to ensure it complies with applicable regulations for manufacturing.  Moving our corporate headquarters and manufacturing facility could cause us to incur significant expenses and could delay or reduce our ability to manufacture our products for some time. Our financial condition and results of operation could be materially adversely affected by any such move.


- 10 -


We are subject to lawsuits.


We are currently party to several lawsuits with a competitor.  In the future we may be party to lawsuits, settlement discussions, mediations, arbitrations and other disputes, including patent and product liability claims, whether brought by companies, individuals or governmental authorities.  These current and future matters may result in a loss of patent protection, reduced revenue, incurrence of significant liabilities and diversion of our management’s time, attention and resources. Our insurance coverage may not provide adequate protection against actual losses. In addition, we are subject to the risk that one or more of our insurers may become insolvent and become unable to pay claims that may be made in the future. Even if we maintain adequate insurance, claims could have a material adverse effect on our financial condition, liquidity and results of operations and on our ability to obtain suitable, adequate or cost-effective insurance in the future. Litigation and other disputes, including any adverse outcomes, may have an adverse impact on our business, operations or financial condition. Even claims without merit could subject us to adverse publicity and require us to incur significant legal fees.


The outcome of pending EMED legal proceedings could have a material adverse impact on our financial condition.


We are involved in several lawsuits with our competitor, EMED Technologies Corporation (“EMED”), wherein EMED has alleged our needle sets infringe various patents controlled by EMED.  Certain of these lawsuits also allege antitrust violations, unfair business practices and various other claims.  Although we believe we will prevail on the merits, an adverse outcome in this matter could materially and adversely affect our business, financial condition, results of operations and cash flows. See “LEGAL PROCEEDINGS” for a further description of this litigation.


If we are unable to protect our patents or other proprietary rights, or if we infringe the patents or other proprietary rights of others, our competitiveness and business prospects may be materially damaged.


Patent and other proprietary rights are essential to our business. We own patents, trade secrets, trademarks and/or other intellectual property rights related to many of our products. Our success depends to a significant degree on our ability to obtain and enforce patents, both in the U.S. and in other countries. We can lose the protection afforded by these intellectual property assets through patent expirations, legal challenges or governmental action. Additionally, our intellectual property rights may be challenged or infringed upon by third parties, particularly in countries where property rights are not highly developed or protected, or we may be unable to enter into license agreements with third-party owners of intellectual property on reasonable terms. Unauthorized use of our intellectual property rights or inability to preserve existing intellectual property rights could adversely impact our competitive position and results of operations.


The patent position of a medical device company is often uncertain and involves complex legal and factual questions. Significant litigation concerning patents and products is pervasive in our industry. Patent claims include challenges to the coverage and validity of our patents on products or processes as well as allegations that our products infringe patents held by competitors or other third parties. A loss in any of these types of cases could result in a loss of patent protection or the ability to market products, which could lead to a significant loss of sales, or otherwise materially affect future results of operations. We also rely on trademarks, trade secrets and know-how to develop, maintain and strengthen our competitive positions. Third parties may know, discover or independently develop equivalent proprietary information or techniques, or they may gain access to our trade secrets or disclose our trade secrets to the public.


Although our employees, consultants, parties to collaboration agreements and other business partners are generally subject to confidentiality or similar agreements to protect our confidential and proprietary information, these agreements may be breached, and we may not have adequate remedies for any breach. To the extent that our employees, consultants, parties to collaboration agreements and other business partners use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.


Furthermore, our intellectual property, other proprietary technology and other sensitive company data is potentially vulnerable to loss, damage or misappropriation from system malfunction, computer viruses, unauthorized access to our data or misappropriation or misuse thereof by those with permitted access and other events. While we have invested to protect our intellectual property, confidential information and other data, and continue to work diligently in this area, there can be no assurance that our precautionary measures will prevent breakdowns, breaches, cyber incidents or other events. Such events could have a material adverse effect on our reputation, business, financial condition or results of operations.


Misappropriation or other loss of our intellectual property from any of the foregoing would have an adverse effect on our competitive position and may cause us to incur substantial litigation costs.


- 11 -


We need to attract and retain key employees to be competitive.


Our ability to compete effectively depends upon our ability to attract and retain executives and other key employees, including people in technical, marketing, sales, research and quality assurance and regulatory compliance positions. We depend on key management personnel and attracting and retaining other qualified personnel, and our business could be harmed if we lose key management personnel or cannot attract and retain other qualified personnel. We do not maintain any “key man” insurance policies on the lives of any of our employees.


In addition, if we expect to grow our operations, it will be necessary for us to attract and retain additional qualified personnel. In particular, we will need to find experienced key employees to lead our research and development and quality assurance and regulatory compliance functions.  The failure to attract, integrate, motivate, and retain additional skilled and qualified personnel could have a material adverse effect on our business. We compete for such personnel against numerous companies, including larger, more established companies with significantly greater financial resources than we possess. Our ability to recruit such talent will depend on a number of factors, including compensation and benefits, work location and work environment. There can be no assurance that we will be successful in attracting or retaining such personnel and the failure to do so could have a material adverse effect on our business, financial condition and results of operations.


We sell a majority of our products through only a few distributors.


Most of our customers prefer to purchase our products through distributors, rather than directly from us, because of one-stop shopping convenience and their ability to ship directly to patients.  We sell most of our products through a small number of distributors, three in and two outside the U.S. As of December 31, 2018, these five distributors comprised approximately 75% of our gross revenues. Any decline in business with the distributors outside the U.S. could have an adverse impact on our business. If we were unable to sell through the distributors outside the U.S., we would have to find other distributors or broaden our customer base and expand direct relationships with customers.  Other distributors may not be available or may not agree to arrangements that are commercially reasonable.  In the U.S. we could transition to direct customer purchase; however, customers may not want to purchase directly from us and may decide to purchase competitors’ products through their distributors.  Moreover, a transition from distributors to direct customer purchase would be time consuming and costly.


If we are unable to obtain sufficient components or raw materials on a timely basis or for a cost-effective price, or if we experience other supply difficulties, our business and results of operations may be adversely affected.


Our ability to meet customer demand depends, in part, on our ability to obtain timely and adequate delivery of raw materials and components for our products. All of the materials and components that go into the manufacturing of our products are sourced from third-party suppliers.


The price and supply of materials and components for our products may be impacted or disrupted for reasons beyond our control. While we work with suppliers to ensure continuity of supply, no assurance can be given that these efforts will be successful. Although we do carry strategic inventory and maintain insurance to help mitigate the potential risk related to any related supply disruption, there can be no assurance that such measures will be sufficient or effective. The termination, reduction or interruption in supply of raw materials and components and an inability to quickly develop acceptable alternative sources for such supply, could adversely impact our ability to manufacture and sell certain of our products in a timely or cost-effective manner, and our ability to make product sales.


Some of the components for our products are provided by a single supplier, including our supplier for molded plastic parts located in Taiwan and our supplier for tubing in the U.S.  We also rely on a single supplier to provide subassemblies for our products.  We do not have long-term agreements in place with these suppliers, although we are in the process of negotiating such agreements with certain of our suppliers. We are also in the process of seeking alternative sources of supply for our products. Due to regulatory requirements relating to the qualification of suppliers, however, we may not be able to establish additional or replacement sources on a timely basis or without excessive cost.


Additionally, volatility in our costs of energy, transportation/freight, components, raw materials and other supply, manufacturing and distribution costs could adversely affect our results of operations. Climate change (including laws or regulations passed in response thereto) could increase our costs, in particular our costs of supply, energy and transportation/freight. Material or sustained increases in the price of oil could have an adverse impact on the cost of many of the plastic materials we use to make and package our products, as well as our transportation/freight costs. These outcomes may in turn result in customers transitioning to available competitive products, loss of market share, negative publicity, reputational damage, loss of customer confidence or other negative consequences (including a decline in stock price).


- 12 -


The reinstatement of the Patient Protection and Affordable Care Act (“PPACA”)’s medical device tax may adversely affect our results of operations.


The PPACA imposes on medical device manufacturers, such as us, a 2.3% excise tax on U.S. sales of certain medical devices. While the excise tax has been suspended until the end of 2019, absent further legislative action, it will be reinstated in 2020, which would adversely affect our results of operations.


Our failure to comply with laws and regulations relating to reimbursement of health care products may subject us to penalties and adversely impact our reputation, business, results of operations, financial condition and cash flows.


Our devices are ultimately purchased principally by specialty pharmacies and ambulatory service providers or hospitals that typically bill various third-party payers, such as governmental programs (e.g., Medicare, Medicaid and comparable non-U.S. programs), private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of those customers to obtain appropriate reimbursement for our products and the drugs they administer from third-party payers is critical because it affects which products customers purchase and the prices they are willing to pay. As a result, our devices are subject to regulation regarding quality and cost by U.S. governmental agencies, including the Centers for Medicare & Medicaid Services (“CMS”), as well as comparable state and non-U.S. agencies responsible for reimbursement and regulation of health care goods and services, including laws and regulations related to kickbacks, false claims, self-referrals and health care fraud. Many states have similar laws that apply to reimbursement by state Medicaid and other funded programs as well as in some cases to all payers. In certain circumstances, insurance companies can attempt to bring a private cause of action against a manufacturer for causing a false claim to be filed under the Federal Racketeer Influenced and Corrupt Organizations Act. In addition, as a manufacturer of FDA-approved devices reimbursable by federal healthcare programs, we are subject to the Physician Payments Sunshine Act, which requires us to annually report certain payments and other transfers of value we make to U.S.-licensed physicians or U.S. teaching hospitals. Any failure to comply with these laws and regulations could subject us or our officers and employees to criminal and civil financial penalties.  Similar reporting requirements applicable to medical device manufacturers have also been implemented by some states. Failure to comply with these state requirements could result in civil monetary penalties being assessed against us.


We may need additional funding in the future, and if we are unable to raise capital when needed, we may be forced to delay, reduce or eliminate our product development, commercial efforts, or sales efforts.


Producing and marketing our developed products is costly. Although we believe we currently have adequate capital to fulfill our near-term funding needs, we may need to raise substantial additional capital in the future in order to execute our business plan and help us fund the development and commercialization of new products.


We may finance future cash needs through public or private equity offerings and may also use debt financings or strategic collaboration and licensing arrangements. We may seek to access the public or private equity markets whenever conditions are favorable, even if we do not have an immediate need for additional capital. To the extent that we raise additional funds by issuing equity securities, our shareholders may experience additional dilution, and debt financing, if available, may involve restrictive covenants and may result in high interest expense. If we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our product candidates, processes and technologies or our development projects or to grant licenses on terms that are not favorable to us. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available from the foregoing sources, we may consider additional strategic financing options, or we may be required to delay, reduce the scope of, or eliminate our research or development efforts or curtail some of our commercialization efforts of our operations.


We may experience difficulties resulting from our new management structure, executive team and members of the Board of Directors.


Since July 2018, the composition of our executive team and Board of Directors has changed substantially.  In addition, we have implemented a new management structure throughout the organization and are actively recruiting to fill these positions.  Although we believe the persons who currently and will serve in these positions are and will be qualified to do so, they may take time to integrate into the organization and with each other, if at all.  Many of these persons have and will have had little or no experience with RMS prior to joining us, which may result in delays in our ability to implement our business plans.  If we are unable to integrate, motivate and retain the services of our new executives and other managers and our directors, or if integration takes longer than we expect, it may have an adverse effect on our business and financial condition.


- 13 -


Changes in tax or labor laws or exposure to additional income tax liabilities could increase our costs and reduce our margins.


Changes to the tax and labor laws in the U.S. or other countries in which we operate could have an adverse effect on our operating results.  In particular, the recently-enacted Tax Cuts and Jobs Act of 2017 (“Tax Reform”), including, among other things, certain changes in tax rates, deductibility of interest, deductibility of executive compensation expense, expensing of capital expenditures, the ability to use certain tax credits, taxation on earnings from international business operations, and the system of taxation (from worldwide to territorial) could adversely affect our financial condition and results of operations.  In certain instances, Tax Reform could have a negative effect on our tax rate and the carrying value of deferred tax balances.  Taxing authorities may audit us from time to time and disagree with certain positions we have taken in respect of our tax liabilities.  We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. However, we may not accurately predict the outcome of these audits, and as a result the actual outcome of these audits may have an adverse impact on our financial results.


Our manufacturing operations depend on low-cost labor.  Recent increases in U.S. minimum wage requirements, as well as those imposed by the state of New York, will increase our costs for employees to support those operations, reduce our margins and negatively impact our profit.


A downturn in global economic conditions could adversely affect our operations.


Deterioration in the global economic environment, particularly in countries with government-sponsored healthcare systems, may cause decreased demand for our products and increased competition, which could result in lower sales volume and downward pressure on the prices for our products, longer sales cycles, and slower adoption of new technologies. A weakening of economic conditions in the U.S. and/or abroad may also adversely affect our suppliers, which could result in interruptions in supply.


We are subject to foreign currency exchange risk.


A portion of our revenues is currently, and we expect in the future to be, derived from international operations. Our revenues from sales outside the U.S. may be adversely affected by fluctuations in foreign currency exchange rates.  We cannot predict with any certainty changes in foreign currency exchange rates or our ability to mitigate these risks.  We may experience additional volatility as a result of inflationary pressures and other macroeconomic factors.  If we cannot adequately mitigate foreign currency exchange rates, our revenues and profit may suffer.


Our distribution network and other operations outside the U.S. subject us to certain risks.


Approximately 18% of our net sales in the year ended December 31, 2018 came from our operations outside the U.S., and we intend to continue to pursue growth opportunities in foreign markets. Our foreign operations subject us to certain risks, including, among others, the effects of fluctuations in foreign currency exchange, uncertainties with respect to local economic and political conditions, competition from local companies, trade protectionism and restrictions on the transfer of goods across borders, U.S. relations with the governments of the foreign countries in which we operate, foreign regulatory requirements or changes in such requirements, local product preferences and product requirements, longer payment terms for accounts receivable than we experience in the U.S., difficulty in establishing, staffing and managing foreign operations, changes to international trade agreements and treaties, changes in tax laws, weakening or loss of the protection of intellectual property rights in some countries, and import or export licensing requirements.


In addition, we are subject to the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws outside the U.S. Actual or alleged violation of these laws by our employees, consultants, sales agents or distributors could subject us to investigations by the U.S. or foreign governments, significant criminal or civil sanctions and other liabilities, and damage our reputation.


Brexit may impact our business in the United Kingdom.


One of our two most significant international distributors is located in the United Kingdom (“UK”), and the other is in Finland, a member of the European Union (“EU”).  The June 2016 referendum result in the UK to exit the EU (commonly known as “Brexit”), and the subsequent commencement of the official withdrawal process by the UK government in March 2017, has created uncertainties affecting business operations in the UK and the EU. Until the terms of the UK’s potential exit from the EU in March 2019 are determined, including any transition period, it is difficult to predict its impact. It is possible that the withdrawal could, among other things, affect the legal and regulatory environments to which our businesses are subject, impact trade between the UK and the EU and other parties, and create economic and political uncertainty in the region.


- 14 -


We are dependent on information technology systems and subject to privacy and security laws, and our systems and infrastructure face certain risks, including from cyber security breaches and data leakage.


Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. While we do not believe that we have experienced any such system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our systems, it could result in a material disruption of our operations. To the extent that any disruption or security breach results in a loss of or damage to our data or applications or other data or applications relating to our technology, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities, damage to our reputation, and the further development of our product candidates could be delayed.  Additionally, such disruptions and security breaches, when there is a risk of patient harm, may require devices changes to fix vulnerabilities and strengthen cybersecurity. Such changes could, in some cases, require reporting to and approval by the FDA prior to implementation, which could cause a delay in the continued marketing of the underlying product that will result in a loss of revenues to us. Furthermore, failure to adhere to good cybersecurity practices with regards to medical devices could result in enforcement action by the FDA including warning letters or other forms of enforcement.


We cannot guarantee that any of our strategic acquisitions, investments or alliances will be successful.


We may seek to supplement our internal growth through strategic acquisitions, investments and alliances. Such transactions are inherently risky, and the integration of any newly-acquired business requires significant effort and management attention. The success of any acquisition, investment or alliance may be affected by a number of factors, including our ability to properly assess and value the potential business opportunity or to successfully integrate any business we may acquire into our existing business. There can be no assurance that any past or future transaction will be successful.


Our operating results and financial condition may fluctuate.


Our operating results and financial condition may fluctuate from quarter to quarter and year to year for a number of reasons. Events such as a delay in product development, increases in litigation expenses, changes to our expectations or strategy or even a relatively small revenue shortfall may cause financial results for a period to be below our expectations or projections. As a result, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of future performance. Our operating results and financial condition are also subject to fluctuation from all of the risks described throughout this section. These fluctuations may adversely affect our results of operations and financial conditions and our stock price.


Future material impairments in the value of our long-lived assets could negatively affect our operating results.


We review our long-lived assets, including identifiable intangible assets and property, plant and equipment, for impairment. Long-lived assets are reviewed when there is an indication that impairment may have occurred. Changes in market conditions or other changes in the future outlook of value may lead to impairment charges in the future. In addition, we may from time to time sell assets that we determine are not critical to our strategy. Future events or decisions may lead to asset impairments and/or related charges. Certain non-cash impairments may result from a change in our strategic goals, business direction or other factors relating to the overall business environment. Material impairment charges could negatively affect our results of operations.


Natural disasters, war and other events could adversely affect our suppliers and customers.


Natural disasters (including pandemics), war, terrorism, labor disruptions and international conflicts, and actions taken by the U.S. and other governments or by our customers or suppliers in response to such events, could cause significant economic disruption and political and social instability in the U.S. and areas outside of the U.S. in which we operate. Certain of the subassemblies used in our products are manufactured in Nicaragua, where there is currently civil unrest whose outcome cannot be predicted.  This and similar events could increase the costs for or cause interruptions in the supply of materials, result in decreased demand for our products or adversely affect our manufacturing and distribution capabilities.


Our insurance coverage may be inadequate to cover all the liabilities we may incur.


We face the risk of exposure to liability claims if any product that we develop causes injury. Although we carry insurance at levels customary for companies in our industry, such coverage may become unavailable or be inadequate to cover all liabilities we may incur. There can be no assurance that we will be able to continue to maintain such insurance, or obtain comparable insurance at a reasonable cost, if at all. If we are unable to obtain sufficient insurance coverage at an acceptable cost or otherwise, or if the amount of any claim against us exceeds the coverage under our policies, we may face significant expenses.


- 15 -


Risks Related to Ownership of Our Common Stock


There may be circumstances in which the interests of our significant stockholders could be in conflict with your interests as a stockholder.


Horton Freedom, L.P. and FirstLight Asset Management, LLC, together with their respective affiliates, beneficially own approximately 31% and 18%, of our outstanding common stock, respectively, after giving effect to the exercise of unexercised warrants.  An affiliate of Horton Freedom, L.P. currently serves on our Board of Directors.  Circumstances may arise in which these stockholders may have an interest in exerting influence to pursue or prevent acquisitions, divestitures or other transactions, including the issuance of additional shares or debt, that, in their judgment, could enhance their investment in us or another company in which they invest. Such transactions might adversely affect us or other holders of our common stock. Furthermore, our significant concentration of share ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in companies with significant stockholders.


We do not currently intend to pay dividends on our common stock.


We have not ever paid dividends on our common stock, and we do not intend to pay any dividends to holders of our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future.


Future sales and issuances of shares of our common stock or rights to purchase our common stock, including pursuant to our stock option plan, could result in additional dilution of the percentage ownership of our stockholders.


We may need additional capital in the future to continue our planned operations. To the extent we raise additional capital by issuing equity and/or convertible securities, our stockholders may experience substantial dilution. We may sell our common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell our common stock, convertible securities or other equity securities, investors may be materially diluted. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.


We provide and intend to continue to provide additional equity-based compensation to our employees, officers, directors, consultants and independent contractors through a stock option plan. Under our stock option plan, 4,000,000 shares of our common stock have been reserved for issuance to our employees, including officers, which number may be increased with the approval of our stockholders. On February 20, 2019, our Board of Directors approved an increase to the number of shares authorized under the plan to 6,000,000, subject to stockholder approval at the 2019 Annual Meeting of Stockholders.  If our Board elects to issue additional stock options under the plan, our stockholders may experience additional dilution, which could cause our stock price to decline. Because stock options granted under the plan will generally only be exercised when the exercise price for such option is below the then market value of the common stock, the exercise of such options or the issuance of shares will cause dilution to the book value per share of our common stock and to existing and new investors.


A limited public trading market may cause volatility in the price of shares of our common stock.


Our common stock is currently quoted on the OTCQX. The quotation of our common stock on the OTCQX does not assure that a meaningful, consistent and liquid trading market currently exists, and in recent years such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like us. Our common stock is subject to this volatility. Sales of substantial amounts of our common stock, or the perception that such sales might occur, could adversely affect prevailing market prices of our common stock and our stock price may decline substantially in a short time and our stockholders could suffer losses or be unable to liquidate their holdings.


We are a smaller reporting company, and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.


We are currently a “smaller reporting company”, as defined in Rule 405 under the Securities Act.  As a smaller reporting company, we take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “smaller reporting companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.


- 16 -


We cannot predict if investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.


Our officers and directors can sell some of their stock, which may have a negative effect on our stock price and ability to raise additional capital, and may make it difficult for investors to sell their stock at any price.


Our officers and directors beneficially own approximately 35% of our outstanding common stock as of February 27, 2019. Each individual officer and director may be able to sell up to 1% of our outstanding common stock every ninety (90) days in the open market pursuant to Rule 144, which may have a negative effect on our stock price. In addition, if our officers and directors are selling their stock into the open market, it may make it difficult or impossible for investors to sell their stock at any price. However, our officers and directors have entered into Lock-Up Agreements and have agreed to refrain from selling any shares of our common stock for 90 days after the effective date of the registration statement covering such sales.


The price of our common stock may be adversely affected by the future issuance and sale of shares of our common stock or other equity securities.


We cannot predict the size of future issuances or sales of our common stock or other equity securities future acquisitions or capital raising activities, or the effect, if any, that such issuances or sales may have on the market price of our common stock. The issuance and sale of substantial amounts of common stock or other equity securities or announcement that such issuances and sales may occur, could adversely affect the market price of our common stock. Any decline in the price of our common stock may encourage short sales, which could place further downward pressure on the price of our common stock and may impair our ability to raise additional capital through the sale of equity securities.


You may find it difficult to sell our common stock.


Historically, there has been a limited trading market in our common stock. We cannot assure you that an active trading market for our common stock will develop or be sustained. Regardless of whether an active and liquid public market exists, negative fluctuations in our actual or anticipated operating results will likely cause the market price of our common stock to fall, making it more difficult for you to sell our common stock at a favorable price, or at all.


Penny stock regulations may impose certain restrictions on marketability of our securities.


Our common stock is subject to penny stock rules, which may discourage broker-dealers from effecting transactions in our common stock or affect their ability to sell our securities. As a result, purchasers and current holders of our securities could find it more difficult to sell their securities. In addition, we may be subject to rules of the SEC that impose additional requirements on broker-dealers when selling penny stocks to persons other than established customers and accredited investors. In general, an accredited investor is a person with net worth in excess of $1,000,000 or annual income exceeding $200,000 individually, or $300,000 together with his or her spouse. The relevant SEC regulations generally define penny stocks to include any equity security not traded on an exchange or the Nasdaq Stock Market with a market price (as defined in the regulations) of less than $5 per share. Under the penny stock regulations, a broker-dealer must make a special suitability determination as to the purchaser and must have the purchaser’s prior written consent to the transaction. Prior to any transaction in a penny stock covered by these rules, a broker-dealer must deliver a disclosure schedule about the penny stock market prepared by the SEC. Broker-dealers must also make disclosure concerning commissions payable to both the broker-dealer and any registered representative and provide current quotations for the securities. Finally, broker-dealers are required to send monthly statements disclosing recent price information for the penny stock held in an account and information on the limited market in penny stocks.


ITEM 1B. UNRESOLVED STAFF COMMENTS


Not applicable.


ITEM 2. PROPERTYPROPERTIES


We currently rent a masonry and steel frame building erected on 3.27 acres of land located at 24 Carpenter Road, Chester, New York 10918.  This facility is used as our headquarters, for manufacturing operations and for research &and development.


- 17 -


Currently, we are in year seventeentwenty of a twenty-year lease that expires in February 2019 and are responsible for all repairs, maintenance, and upkeep of the space occupied. The terms of the lease call for monthly lease payments of $11,042, and we contribute payments of 65% of the building’s annual property taxes, amounting to $47,408$50,512 for the year ended February 29, 2016.December 31, 2018.  We have entered into a lease extension with our current landlord, which calls for six month extensions beginning March 1, 2019 with the option to renew six times through August 2022, with monthly lease payments of $12,088.  Our current landlord is a director of RMS.  See ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE.


We believe our current facilities are suitable and adequate for our current business operations. We continue to seek another location with more square footage to provide us room for growth.  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.


We also lease 2,500 square feet of warehousestorage space in a nearby industrial park on a year-to-yearmonth-to-month basis.  In Fiscal 2016,For the year ending December 31, 2018, we paid $23,222$20,921 in rent and common charges for this space.


The Company owns a residence adjacent to our facility for use as additional office and research and development space.  We paid cash for the property in the amount of $0.2 million.  We intend to list that property for sale as we believe it is no longer useful.


ITEM 3. LEGAL PROCEEDINGS


In 2013,We are involved in several lawsuits with our principal competitor, EMED Technologies Corporation (“EMED”), wherein EMED has alleged that our needle sets infringe various patents controlled by EMED.  Certain of these lawsuits also allege antitrust violations, unfair business practices, and various other claims.  We are vigorously defending against all of the Company commencedlawsuits brought by EMED.  Although no assurances can be given, we believe we have meritorious defenses to all of EMED’s claims.


The initial case involving EMED was filed by us in the United States District Court for the Eastern District of California on September 20, 2013 (the “California case”), in response to a letter from EMED claiming patent infringement by us, and sought a declaratory judgment action against competitor, EMED Technologies Corp. (“EMED”) to establishestablishing the invalidity of one ofthe patent referenced in the letter – EMED’s patents and non-infringement of the Company’s needle sets.US patent 8,500,703 – or “‘703.”  EMED answered the complaint and asserted patent infringement of the ‘703 Patent and several counterclaims relating generally to claims of unfair business practice counterclaims. The Companypractices against us. We responded by asserting its ownadding several claims against EMED, generally relating to claims of unfair business practice claims against EMED.  practices on EMED’s part.  Both parties have requested injunctive relief and monetary damages in unspecified amounts.


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.  The Company is complying with that order.  On March 24, 2016, EMEDAugust 22, 2017, we filed a motion forin this California case seeking a second preliminary injunctionPreliminary Injunction prohibiting EMED from making false statements and claims regarding salesthe products of RMS products in California.both companies.  The Company is opposing that motion has now been fully briefed, and briefing for this motion, as well as case discovery is ongoing.the parties are awaiting action by the Court.


Earlier, on September 11, 2015, we requested an ex parte reexamination of the ‘703 patent by the US Patent and Trademark Office (“USPTO”). The ex parte reexamination resulted in a Final Office Action dated July 19, 2017 rejecting all of EMED’s claims in the patent.  On JuneJanuary 25, 2015,2018 EMED filed an Appeal Brief with a claimPetition for Revival, which was accepted.  On April 9, 2018 the USPTO denied EMED’s request for reconsideration of patent infringement for the order rejecting all claims in the ‘703 patent.


The second of its patents, also directed to the Company’s needle sets,court case was filed by EMED in the United States District Court for the Eastern District of Texas.Texas on June 25, 2015, claiming patent infringement of Claim 1 of another of its patents (US 8,961,476 – “‘476”), by our needle sets, and seeking unspecified monetary damages (“ED Texas ‘476 matter”). This second‘476 patent is related to the one concerning the Company’s declaratory judgment action.  Given the close relationship between the two patents, the Company has requested that the Texas suit be transferred to California.  The Court has not yet ruled on the Company’s transfer request.  Discovery in the Texas suit is ongoing.‘703 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 Companywe requested an inter partes review (“IPR”) of the patent‘476, and 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 decisionresponse 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.  Based on the grant of the IPR, the Company intends toour request, the Court stay proceedingsentered an order staying the ED Texas ‘476 matter until after the Patent Trial and Appeal Board (“PTAB”) of the second filed case until conclusionUSPTO made a decision regarding the validity of the IPR.patent.  On January 12, 2017, the PTAB issued its Final Written Decision in our favor invalidating all but one (“dependent Claim 9”) of the claims in the ‘476 patent.   EMED appealed the PTAB’s ruling to the United States Court of Appeals for the Federal Circuit, which affirmed the PTAB’s Final Written Decision in our favor on April 3, 2018.  On April 18, 2018, EMED filed a petition for en banc rehearing, which was denied.  On August 16, 2018, EMED petitioned the United States Supreme Court for a Writ of Certiorari to review the Federal Circuit’s upholding the PTAB’s Final Written Decision.  On October 29, 2018 the United States Supreme Court denied EMED’s Petition for a Writ of Certiorari, thus finally affirming the PTAB’s invalidation of ‘476, save for one dependent claim.


- 18 -


Following the PTAB’s Final Written Decision in the IPR regarding ‘476, EMED filed a new patent application claiming priority back to the application that issued as ‘703, which is the patent at issue in the California case.  Submitted for accelerated examination, this new application issued as US 9,808,576 – “‘576” on November 7, 2017.  On this same date, EMED filed a new case (the “third case”) in the United States District Court for the Eastern District of Texas claiming patent infringement of ‘576, also directed to our needle sets, and seeking unspecified damages and a preliminary injunction against our marketing of its needle sets.  We filed a Motion to Dismiss or Transfer Venue to the United States District Court for the Southern District of New York (“SDNY”), which has resulted in the transfer of the third case to SDNY (“SDNY ‘576 matter”).


The SDNY ‘576 matter is proceeding with preliminary matters and although a fixed trial date has not been set it is expected to be in the fourth quarter of 2019 or the first quarter of 2020.


On April 23, 2018, EMED filed a new civil case (the “fourth case”) against us in the United States District Court for the Eastern District of Texas (the “Texas Court”) asserting antitrust, defamation and unfair business practice claims, and seeking unspecified damages, similar to those previously presented in the California case, described above.  As the result of a hearing on November 14, 2018, on December 7, 2018 the Court entered an order transferring the fourth case to the United States District Court for the Eastern District of California (the “California Court”) to be combined with the California case, or dismissed, as the California Court sees fit.


At the same hearing on November 14, 2018, the Texas Court granted EMED leave to amend its infringement contentions, following the IPR decision invalidating all but one claim of the ‘476 patent, in order to assert infringement of that sole remaining claim, namely dependent Claim 9.  The Texas Court’s order allowing EMED’s amendment of its infringement contentions against us was entered on December 7, 2018.


The ED Texas ‘476 matter is now proceeding under EMED’s amended infringement contention to incorporate the surviving dependent Claim 9, which incorporates Claims 1 and 8 of the ‘476 patent, meaning that, to prove infringement on the part of us, EMED must prove more elements of infringement than it originally charged against us.  The Texas Court has set a trial date of August 19, 2019 for the trial of the ED Texas ‘476 matter.


As is required by the respective Courts in both the SDNY ‘576 matter and the ED Texas ‘476 matter, the parties are engaging in settlement discussions and have scheduled mediation sessions.


Although the Company believes it haswe believe we have meritorious claims and defenses in these litigationsall of the above-described actions and proceedings, their outcomes cannot be predicted with any certainty. If any of these actions against us are successful, they could have a material adverse effect on our business, results of operations, financial condition and cash flows.


- 9 -



ITEM 4. MINE SAFETY DISCLOSURES


Not applicable.


PART II


ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


We are authorized to issue 50,000,00077,000,000 shares of capital stock, of which 75,000,000 are designated common stock, $0.01 par value per share (“Common Stock”), and 2,000,000 are designated preferred stock. As of December 31, 2018, 38,195,680 shares of Common Stock $.01 par value. As of February 29, 2016, 37,966,501 shares were issued and outstanding and there were approximately 1,015771 stockholders of record.  There were no shares of preferred stock issued and outstanding.


Our Common Stock is traded inon the over-the-counter market. The following table sets forthOTCQX market under the high and low closing bidsymbol, “REPR”.  Any quotations foron the Common Stock, as reported by Nasdaq.com, for the periods indicated. These quotations do not includeOTCQX reflect inter-dealer prices, without retail mark-up, markdown,mark-down, or commission and may not represent actual transactions.  We have not paid any cash dividends on our Common Stock and do not plan to pay any such dividends in the foreseeable future. We currently intend to use all available funds for our business operations.


 

 

High

 

 

Low

 

 

 

 

 

 

 

 

2016 QUARTER ENDED

 

 

 

 

 

 

February 29, 2016

 

$

0.57

 

 

$

0.34

 

November 30, 2015

 

$

0.42

 

 

$

0.30

 

August 31, 2015

 

$

0.45

 

 

$

0.28

 

May 31, 2015

 

$

0.45

 

 

$

0.37

 

 

 

 

 

 

 

 

 

 

2015 QUARTER ENDED

 

 

 

 

 

 

 

 

February 28, 2015

 

$

0.49

 

 

$

0.38

 

November 30, 2014

 

$

0.42

 

 

$

0.29

 

August 31, 2014

 

$

0.36

 

 

$

0.23

 

May 31, 2014

 

$

0.25

 

 

$

0.16

 

- 19 -


On October 21, 2015, the Board of Directors of the Company approved director compensation of $25,000 each annually, to be paid quarterly half in cash and half in common stock, effective September 1, 2015.  Directors include Dr. Mark Baker, Mr. Mark Pastreich, Mr. Arthur Radin and Mr. Cyril Narishkin.  For purposes of director compensation, Mr. Narishkin will receive $25,000 annually in addition to his payments under his consulting agreement.  As of February 29, 2016, each director was paid $12,500 of which half was paid in cash and half in common stock of which each director received 14,566 in common shares.  Beginning March 1, 2016, all Directors, excluding Mr. Andrew Sealfon, the Company’s Chief Executive Officer, will receive director compensation.


On September 30, 2015, RMS’s Board of Directors authorized a stock repurchase program pursuant to which the Company willmay make open market purchases of up to 1,000,0002,000,000 shares of the Company’s Outstanding Common Stock.outstanding common stock.  The purchases will behave been 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 February 29, 2016,December 31, 2018, the Company had repurchased 180,406396,606 shares at an average price of $0.45 under the program.  There is no expiration date to the program. As of December 31, 2018, the maximum number of shares available to be repurchased under the Plan was 1,603,394.  In June 2017 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.  As such, no shares were repurchased in the twelve months ended December 31, 2018.


On September 30, 2015, the Board of Directors approved the 2015 Stock Option Plan authorizing the Company to grant awards to certain executives, key employees, and consultants under the plan at fair market value, subject to shareholder approvalwhich was approved by shareholders at the Annual Meeting to be held on July 27,September 6, 2016.  TheCurrently, the total number of shares of common stock of the Company, par value $.01 per share (“Common Stock”),Stock, with respect to which awards may be granted pursuant to the Plan, shallmay not exceed 2,000,000 shares.4,000,000.  On February 20, 2019, our Board of Directors approved an increase to the number of shares authorized under the plan to 6,000,000, subject to stockholder approval at the 2019 Annual Meeting of Stockholders.  As of February 29, 2016,December 31, 2018, the Company awarded 1,060,000had 2,419,000 options outstanding to certain executives, and key employees and consultants under the plan.


On August 8, 2014, we executed an agreement with Horton Capital Partners Fund, an institutional investor based in Philadelphia, PA, to sell one million shares of our common stock and warrants to purchase an additional one million shares of common stock at an exercise price of $0.45 per share.  The aggregate purchase price was $0.3 million.


- 10 -



ITEM 6. SELECTED FINANCIAL DATA


Not applicable.


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


ThisThe following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included under ITEM 8 of this Annual Report on Form 10-K10-K. This discussion contains certain “forward-looking”forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995)about our business and information relating to us that are based on the beliefs of the management, as well as assumptions made by management and information currently available.


operations. 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. 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 contemplatedwe currently anticipate as a result of many factors, including those described under Part I – FORWARD LOOKING STATEMENTS and elsewhere in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. These statements involve risks and uncertainties with respect to the ability to raise capital to develop and market new products, acceptance in the marketplace of new and existing products, ability to penetrate new markets, our success in enforcing and obtaining patents, obtaining required Government approvals and attracting and maintaining key personnel that could cause the actual results to differ materially. 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.this Annual Report.


INDUSTRY TRENDS


The healthcare industry has seen huge changes in reimbursement and medical insurance during the past decade.  In the U.S., the Affordable Health Care Act was created in part to address the rising costs of medical care and ensure greater efficacy of treatments.  One trend that is significantly impacting the costs of health care is moving treatments out of the hospital and into the home.  Our products are specifically designed for home care infusions, and we expect this trend towards home care infusions to continue and to accelerate.


In Europe, governments have recognized that the increases in health care costs are unsustainable, and are moving towards home care health services as quickly as possible.  Thus we expect the home care infusion market to continue to expand worldwide.


While many countries are attempting to reduce reimbursement and simply lower costs, there is also a trend towards proving efficacy. In the U.S., when patients require additional treatments for the same illness, the responsibility falls back onto the health care provider who must pick up the cost of any additional treatments.  We believe that health systems which consider the outcomes of the treatment will find that our infusion systems are not only cost effective but also have proven favorable outcomes.  


KEY PERFORMANCE INDICATORS


Management reviews and analyzes several key performance indicators in order to manage our business and assess quality of, potential variability of, our earnings and cash flows.  These key performance indicators include:


·

Net Sales – which is an indicator of our overall business growth:

·

Gross Profit – is a key factor in the relative strength of our products as gross profits enable us to generate cash to maintain marketing support and research and development, and therefore improve market share;

·

Operating Expenses – outright and as a percentage of net sales, which is an indicator of the efficiency of our business and our ability to manage to our business plan.


- 11 -


FISCAL YEAR END


TheIn order to conform to industry norms and to facilitate financial analysis for investors, on March 22, 2017, the Board of Directors approved a change in the Company’s fiscal year end from February 28 to December 31. For the fiscal year ended December 31, 2017, RMS filed a Transition Report on Form 10-KT for the ten months ended December 31, 2017 and the twelve months ended February 28, 2017. For fiscal year ending December 31, 2018 twelve months are compared to the transition year ten months ended December 31, 2017.  For comparison purposes, RMS is February 29.also presenting the twelve months ending December 31, 2017 within this management discussion and analysis below.


OVERVIEW


RMS went through some significant changes during 2018.


On July 25, 2018, Andrew I. Sealfon was terminated as President, Chief Executive Officer and Chairman of the Board, effective immediately.  Consequently, Mr. Sealfon’s employment was terminated.  Mr. Sealfon remained as a director until December 18, 2018.  Also on July 25, 2018, Daniel S. Goldberger was appointed as President and Chief Executive Officer on an interim basis and as Chairman of the Board, and replaced as the Lead Director.  The Board appointed Joseph M. Manko, Jr., a current RMS director, as Lead Director.


On September 4, 2018, the Company entered into an employment agreement with Donald B. Pettigrew to serve as its President and Chief Commercial Officer.


- 20 -


On September 17, 2018, the Board of Directors of the Company formed a special committee of the Board (the “Special Committee”) with authority to investigate, evaluate, make decisions, and take any and all action with respect to (a) a purported request (i) from Andrew I. Sealfon, Dr. Paul M. Baker and Andrea Baker, in their capacities as shareholders of the Company, to call a special shareholders’ meeting and (ii) from Mr. Sealfon and Dr. Baker, in their capacities as directors of the Company, to call a special meeting of the Board (collectively, the “Special Meetings Request”); and (b) issues of proper consideration for the Board raised by certain discoveries involving Mr. Sealfon prior to his termination from the Company.  The Special Committee identified certain deficiencies in the Special Meetings Request  based upon its review of the Special Meetings Request to date and communicated those to Mr. Sealfon and Dr. Baker.  Shortly following the termination of Mr. Sealfon’s employment and service as President, Chief Executive Officer and Chairman of the Board, certain non-financial discoveries were made involving Mr. Sealfon prior to his termination from the Company.  On the advice of and through Company counsel, the Company engaged Kroll, a division of Duff & Phelps Corporation, to perform an independent investigation of certain of Mr. Sealfon’s non-financial activities while employed by the Company.  The Special Committee, through counsel, oversaw Kroll with respect to this investigation.  The Special Committee retained Olshan Frome Wolosky LLP for legal advice.  The Special Committee’s activities, including those with respect to the investigation, concluded effective with the entry into an Agreement Regarding Stock Sale dated as of December 17, 2018 between each of Mr. Sealfon and Mr. Baker and the Company in which the parties entered into mutual general releases with respect to all claims prior to that date.


Horton Capital Partners Fund, LP (“HCPF”) holds Warrants to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.45 per share, pursuant to a previously disclosed agreement with the Company dated August 8, 2014. The Warrant includes a conversion cap that precludes HCPF from exercising the Warrant to the extent that HCPF would, after such exercise, beneficially own (as determined in accordance with Section 13(d) of the Act) in excess of 9.99% of the shares of Common Stock then outstanding, unless HCPF elects to waive this provision with the agreement of the Company. As HCPF already owns in excess of 9.99% of the outstanding shares of Common Stock, this provision was waived by HCPF on August 31, 2018 and acknowledged by the Company on September 12, 2018.  On September 13, 2018, HCPF notified the Company of its intention to exercise the warrant in full at a closing to take place no earlier than November 12, 2018, or 61 days from the Company’s acknowledgement.  As of December 31, 2018, HCPF had not exercised its warrants which expire on August 8, 2019.


On December 17, 2018, the Company entered into a Common Stock Purchase Agreement (the “Agreement”) with Andrew I. Sealfon and other sellers set forth in the Agreement and purchasers listed in the Agreement in a private placement transaction.  Pursuant to that agreement, we agreed to file a resale registration statement.  The existing stockholders party to the agreement included Andrew I. Sealfon and Paul Mark Baker, then directors of RMS, together with certain members of their respective family members.  Andrew I. Sealfon, Paul Mark Baker, Andrea Baker, Brad Sealfon and Mary Sealfon, existing stockholders party to the agreement, received an aggregate of $12,218,977 in connection with the transaction. One of the purchasers was Horton Freedom, L.P., an affiliate of Horton Capital Partners, LLC, who paid $3,842,036 in connection with the transaction.  At the time of the purchase, Horton Capital Partners, LLC beneficially owned more than 5% of our outstanding common stock. Joseph M. Manko, Jr. is the managing member of Horton Capital Partners, LLC and has served as a director of the Company since May 2016.


In connection with the Agreement, also on December 17, 2018, we entered into an Agreement Regarding Stock Sale with Mr. Sealfon and a separate Agreement Regarding Stock Sale with Dr. Baker (the “Separation Agreements”).  Pursuant to these Separation Agreements, Mr. Sealfon and Dr. Baker tendered their respective resignations from our Board of Directors effective with the first closing of the transaction under the purchase agreement, which occurred on December 18, 2018.  Each of these separation agreements provides for the mutual general release by us, on the one hand, and each of Mr. Sealfon and Dr. Baker, on the other hand, of all claims against the other arising or occurring on or before the date thereof, subject to certain exceptions. Pursuant to the agreement with Mr. Sealfon, Mr. Sealfon agreed to certain non-competition and non-solicitation restrictions for a period of six months after the first closing.


Effective December 5, 2018, the Company added two new independent members to the Board of Directors, Robert T. Allen and James M. Beck.  On December 6, 2018, the Company’s Vice President of Operations, Manuel Marques, was promoted to the position of Chief Operating Officer.


Effective December 20, 2018, we terminated the employment of Fred Ma, Ph.D., its Chief Medical Officer (“Employee”) and entered into a General Release and Confidentiality Agreement (the “Agreement”).  Pursuant to the terms of the Agreement, RMS will pay Employee an aggregate $225,000, payable bi-weekly commencing December 31, 2018.  Pursuant to the Agreement, Employee has agreed to certain non-competition and non-solicitation restrictions for a period of six months.


- 21 -


We ended the year with record net sales of $17.4 million for the twelve months ended December 31, 2018.  We believe these record sales are in part due to increased penetration of the PIDD market for subcutaneous immunoglobulin, some early adoption of immunoglobulin for chronic inflammatory demyelinating polyneuropathy (“CIDP”) indication for the subcutaneous drug Hizentra®, and increased clinical trials with our pharmaceutical customers.


Higher sales and operating efficiencies improved our gross margins to 62.3% for 2018.  Last year we had increased levels of scrap during quality inspections.  In January 2018, we implemented a nondestructive testing protocol to reduce scrap which helped drive the improvement in margins.


The organizational changes described above included expenses related to the termination and replacement of C-suite executives and senior management, legal expenses related to activities under the purview of the Special Committee, the recruitment of new directors replacing exiting directors and investment banking and legal fees for the Agreement, all in aggregate, increased operating expenses by $0.6 million for the fourth quarter and $1.0 million for the twelve months ended December 31, 2018.


Despite the large reorganization charges, we ended the year with $0.9 million in net income and $5.3 million of cash on hand, including a certificate of deposit of $1.5 million.


RESULTS OF OPERATIONS


Fiscal YearTwelve Months Ended February 29, 2016December 31, 2018 compared to Fiscal Yearthe Ten Months Ended February 28, 2015December 31, 2017


Net Sales


The following table summarizes our net sales for the yearstwelve months ended February 29, 2016December 31, 2018 and February 28, 2015:  the ten months ended December 31, 2017.


 

February 29,

 

February 28,

 

Change from Prior Year

 

% of Sales

 

 

Twelve Months Ended

 

Ten Months Ended

 

Change from Prior Year

 

% of Net Sales

 

 

2016

 

2015

 

$

 

%

 

2016

 

2015

 

 

December 31, 2018

 

December 31, 2017

 

$

 

%

 

December 31, 2018

 

December 31, 2017

 

Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

$

10,195,856

 

$

9,089,413

 

$

1,106,443

 

12.2%

 

83.2%

 

80.8%

 

 

$

14,235,689

 

$

10,885,446

 

$

3,350,243

 

30.8%

 

82.0%

 

81.8%

 

International

 

 

2,051,482

 

 

2,155,247

 

 

(103,765

)

(4.8%

)

16.8%

 

19.2%

 

 

 

3,118,048

 

 

2,428,448

 

 

689,600

 

28.4%

 

18.0%

 

18.2%

 

Total

 

$

12,247,338

 

$

11,244,660

 

$

1,002,678

 

8.9%

 

 

 

 

 

 

$

17,353,737

 

$

13,313,894

 

$

4,039,843

 

30.3%

 

 

 

 

 


Net sales for the yeartwelve months ended February 29, 2016, increased 8.9% to $12.2 million up from $11.2 millionDecember 31, 2018 were 30.3% greater than net sales for the same period last year.  The domestic market grew at a strong pace of 12.2%, whereas our international market decreased by (4.8%)ten months ended December 31, 2017 due to currency translation,the twelve month versus ten month period comparison.  Also contributing to the increase were higher needle set sales at a single customerwe believe is in fiscal 2015part due to temporary treatmentsincreased penetration of the PIDD market for subcutaneous immunoglobulin, some early adoption of immunoglobulin for CIDP indication for the subcutaneous drug Hizentra®, and the interim loss of sales from a customer who has since returned to us as a customer.  Helping to offset these declines wasincreased clinical trials with our success in gaining several new internationalpharmaceutical customers.


Our infusion products,The following table summarizes our net sales for the twelve months ended December 31, 2018 and 2017.


 

 

Twelve Months Ended December 31,

 

Change from Prior Year

 

% of Net Sales

 

 

 

2018

 

2017

 

$

 

%

 

2018

 

2017

 

Net Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

$

14,235,689

 

$

12,615,121

 

$

1,620,568

 

12.9%

 

82.0%

 

81.7%

 

International

 

 

3,118,048

 

 

2,827,591

 

 

290,457

 

10.3%

 

18.0%

 

18.3%

 

Total

 

$

17,353,737

 

$

15,442,712

 

$

1,911,025

 

12.4%

 

 

 

 

 


Net sales increased $1.9 million or 12.4% compared with the twelve month period last year, driven primarily by increased needle set sales, which include the FREEDOM60 Syringe Infusion System (“FREEDOM60”) and RMS HIgH-Flo Subcutaneous Safety Needle Sets drove this increase.  We have concentrated the majority of our efforts in our infusion product lines, specifically towards subcutaneous immune globulin (“SCIG”) applications in both domestic and international markets.  We anticipate sales to continue to increase as the SCIG market continues to develop and as we work on new enhancements to the FREEDOM60 that we believe will expand this market even further. In addition, we expect manyis in part due to increased penetration of the SCIG providersPIDD market for subcutaneous immunoglobulin, some early adoption of immunoglobulin for CIDP indication for the subcutaneous drug Hizentra®, and others will see benefit in using the FREEDOM60 system for additional uses, such as antibiotics, chemotherapeutics, and pain medications.    Our efforts to reenter into the antibiotic market resulted in a large home care hospital system selecting the FREEDOM60 for all patients receiving this therapy.  increased clinical trials with our pharmaceutical customers.


- 22 -


Gross Profit


Our gross profit for the yearstwelve months ended February 29, 2016December 31, 2018 and February 28, 2015the ten months ended December 31, 2017 is as follows:


 

 

 

Change from Prior Year

 

 

Twelve Months Ended

 

Ten Months Ended

 

Change from Prior Year

 

2016

 

2015

 

$

 

%

 

 

December 31, 2018

 

December 31, 2017

 

$

 

%

Gross Profit

 

$

7,602,903

 

$

6,687,699

 

$

915,204

 

13.7%

 

 

$

10,810,488

 

$

8,138,948

 

$

2,671,540

 

32.8%

Stated as a Percentage of Net Sales

 

 

62.1%

 

59.5%

 

 

 

 

 

 

 

62.3%

 

 

61.1%

 

 

 

 

 


The increase in gross profit of $2.7 million or 32.8% is due to the twelve month versus ten month period comparison, as well as due to operating efficiencies.   Last year we had increased levels of scrap during quality inspections.  In January 2018, we implemented a nondestructive testing protocol to reduce scrap which helped drive the improvement in margins.


Our gross profit for the twelve months ended December 31, 2018 and 2017 is as follows:


 

 

Twelve Months Ended December 31,

 

Change from Prior Year

 

 

2018

 

2017

 

$

 

%

Gross Profit

 

$

10,810,488

 

$

9,268,107

 

$

1,542,381

 

16.6%

Stated as a Percentage of Net Sales

 

 

62.3%

 

 

60.0%

 

 

 

 

 


Gross profit for the twelve months ended December 31, 2018 increased $0.9$1.5 million or 13.7% in 2016, as16.6% compared to 2015,the same period last year, driven by higherincreased net sales and lower production costs.operating efficiencies described above.


Gross profit as a percentage of net sales improved 2.6% compared to 2015, mostly due to our lean manufacturing initiatives during the first half of our fiscal year which was partially offset by an accrual for costs associated with a voluntary market withdrawal related to a defect in the packaging supplied to us by a third party vendor.  The second half of our fiscal year continued to have increased capacity, as well as lower direct assembly labor costs.


- 12 -


Selling, general and administrative and Research and development


Our selling, general and administrative expenses and research and development costs for the yearstwelve months ended February 29, 2016December 31, 2018 and February 28, 2015the ten months ended December 31, 2017 are as follows:


 

 

 

Change from Prior Year

 

 

Twelve Months Ended

 

Ten Months Ended

 

Change from Prior Year

 

2016

 

2015

 

$

 

%

 

 

December 31, 2018

 

December 31, 2017

 

$

 

%

Selling, general and administrative

 

$

5,942,671

 

$

4,788,279

 

$

1,154,392

 

24.1%

 

 

$

9,095,565

 

$

6,594,570

 

$

2,500,995

 

37.9%

Research and development

 

 

207,282

 

 

468,154

 

 

(260,872

)

(55.7%

)

 

 

241,124

 

 

50,587

 

 

190,537

 

376.7%

 

$

6,149,953

 

$

5,256,433

 

$

893,520

 

 

 

 

$

9,336,689

 

$

6,645,157

 

$

2,691,532

 

40.5%

Stated as a Percentage of Net Sales

 

 

50.2%

 

46.7%

 

 

 

 

 

 

 

53.8%

 

49.9%

 

 

 

 

 


Selling, general and administrative expenses increased $2.5 million for the twelve months ended December 31, 2018, up 37.9% from the ten month period ended December 31, 2017 due in part to $5.9the twelve month period versus the ten month period comparison.  Additionally, legal expenses increased related to the activities under the purview of the Special Committee, the Common Stock Purchase Agreement executed on December 17, 2018, continued litigation efforts and increased general counsel support for corporate matters, totaling $0.8 million.  Our reorganization efforts included costs associated with C-suite, senior management and board changes, resulting in severance expense, sign on bonuses, stock option issuances and recruiting fees in aggregate totaling $0.6 million.  We added a clinical and medical affairs associate and had higher regulatory salary and benefits, consulting fees for FDA submissions and international registrations totaling in aggregate $0.3 million and we spent more for consulting and investor and public relations services totaling $0.2 million.  Offsetting some of these expenses were lower salary and benefits in Fiscal 2016, up 24.1% from $4.8 millionselling and marketing and in Fiscal 2015.  Of the $1.2 million increase, $0.2 million isexecutive department due to legal fees incurred for our patent litigation, increased regulatory consulting fees incurred for FDA reporting requirements in the amount $0.1 million, our reorganization effort which increased net salariesmanagement changes and related expensesattrition, lowering expense year over year by $0.2 million and also included a severance charge of $0.2 million and recruiting and consulting fees of $0.3$0.6 million.  Further adding to the increase was higher trade show expense of $0.1 million due to greater representation at certain shows such as the National Home Infusion Association, attendance at new shows, and the timing of others that are held every two years.  Also adding to the increase was the addition of fees to compensate our board of directors in the aggregate of $50,000 for the year.


Research and development expenses decreasedincreased by $0.3$0.2 million in Fiscal 2016for the twelve months ended December 31, 2018 compared to the ten month period ended December 31, 2017 due to an increase in headcount and expanded product development initiatives compared with last year.


- 23 -


Our selling, general and administrative expenses and research and development costs for the twelve months ended December 31, 2018 and 2017 are as follows:


 

 

Twelve Months Ended December 31,

 

Change from Prior Year

 

 

2018

 

2017

 

$

 

%

Selling, general and administrative

 

$

9,095,565

 

$

7,731,972

 

$

1,363,593

 

17.6%

Research and development

 

 

241,124

 

 

88,621

 

 

152,503

 

172.1%

 

 

$

9,336,689

 

$

7,820,593

 

$

1,516,096

 

19.4%

Stated as a Percentage of Net Sales

 

 

53.8%

 

 

50.6%

 

 

 

 

 


Selling, general and administrative expenses increased $1.4 million, or 17.6%, for the twelve months ended December 31, 2018, compared with the same period last year, mostlyprimarily due to increased legal fees related to the activities under the purview of the Special Committee, the Common Stock Purchase Agreement executed on December 17, 2018, continued litigation efforts and increased general counsel support for corporate matters, totaling $0.8 million.  Our reorganization efforts included costs associated with C-suite, senior management and board changes, resulting in severance expense, sign on bonuses, stock option issuances and recruiting fees in aggregate totaling $0.6 million.  We added a reductionclinical and medical affairs associate and had higher regulatory salary and benefits, consulting fees for FDA submissions and international registrations totaling in outsideaggregate $0.3 million and we spent more for consulting and investor and public relations services totaling $0.2 million.  Offsetting some of these expenses were lower salary and frombenefits in selling and marketing and in executive department due to management changes and attrition, in the department.  We recently added an engineer to our staff, as we continue to be committed to our researchlowering expense year over year by $0.6 million.


Research and development effortscosts increased $0.2 million, or 172.1%, due to an increase in order to develop new products.  We continue to actively pursue newheadcount and expanded 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.initiatives compared with last year.


Depreciation and amortization


Depreciation and amortization expense decreased by 4.3% down to $0.27 millionwas $52,006, or 20.2%, higher in Fiscal 2016the twelve months ended December 31, 2018 compared with $0.28 millionthe ten month period ended December 31, 2017 due principally to the twelve month versus ten month comparison.


For the twelve months ended December 31, 2018, depreciation and amortization expense increased $2,701, or 0.9%, compared with the same period last year.  We continued to invest in Fiscal 2015,capital assets, mostly duerelated to many assets reachingproduction, and in patent applications and their useful lives, partiallymaintenance.  Amortization increased and was offset by capital purchases for our production lines and general facility needs and improvements.a reduction in depreciation expense as a significant number of assets become fully depreciated over the course of the year compared with last year.


Net Income


 

 

 

Change from Prior Year

 

 

Twelve Months Ended

 

Ten Months Ended

 

Change from Prior Year

 

2016

 

2015

 

$

 

%

 

 

December 31, 2018

 

December 31, 2017

 

$

%

Net Income

 

$

782,864

 

$

753,117

 

$

29,747

 

3.9%

 

 

$

910,570

 

$

904,957

 

$

5,613

0.6%

Stated as a Percentage of Net Sales

 

 

6.4%

 

6.7%

 

 

 

 

 

 

 

5.2%

 

6.8%

 

 

 

 


Our net income for the Fiscal 2016twelve months ended December 31, 2018 was $0.9 million, unchanged from the ten months ended December 31, 2017.  Although we had two additional months of net sales in 2018, our expenses were significantly higher for the reasons described above, as well as due to the additional two months in the period compared with December 31, 2017.  Partially offsetting the expenses was the favorable tax rate compared with last year.


 

 

Twelve Months Ended December 31,

 

Change from Prior Year

 

 

2018

 

2017

 

$

%

Net Income

 

$

910,570

 

$

819,547

 

$

91,023

11.1%

Stated as a Percentage of Net Sales

 

 

5.2%

 

 

5.3%

 

 

 

 


Our net income for the twelve months ended December 31, 2018 was $0.9 million, as compared to net income of $0.8 million 3.9% higher than Fiscal 2015.for the twelve months ended December 31, 2017.  This increase is due to an increasewas the result of $1.0 million inincreased net sales, improved gross margins duemargin and the lower tax rate compared with last year.  Partially offsetting these were expenses the Company incurred related to our lean initiatives throughout the fiscal yearlegal fees, severance, sign on bonuses and reduced research and development costs, partially offset by the increase in selling, general and administrative expenses of $1.2 millionrecruiting fees as described above.


- 24 -


LIQUIDITY AND CAPITAL RESOURCES


Our principal source of liquidity is our cash of $4.2$3.7 million as of February 29, 2016,December 31, 2018.  Additionally, we have a $1.5 million certificate of deposit that matures in May 2019 and cash flows from operations.a $1.5 million line of credit with no outstanding amounts against it.  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,legal fees, capital expenditures and patent costs.


- 13 -


We believe that as of February 29, 2016,December 31, 2018, 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.


On September 30, 2015, RMS’s Board of Directors authorized a stock repurchase program pursuant to whichFebruary 8, 2018, the Company will make open market purchasesexecuted a Promissory Note with KeyBank National Association (“KeyBank”) in the amount of up$1.5 million as a variable rate revolving line of credit loan due on demand with an interest rate of Libor plus 2.25%, collateralized with a certificate of deposit in the amount of $1.5 million.  The Company entered into this arrangement to 1,000,000 sharesestablish a credit lending history and, in the event needed, to have additional cash on hand for future expansion.  On September 25, 2018, KeyBank released the certificate of deposit as collateral for the Company’s Outstanding Common Stock.  The purchases will be made through a broker to be designated byloan and the Company with price, timing and volume restrictions based on average daily trading volume, consistent withexecuted a Commercial Security Agreement as collateral for the safe harbor rules of the Securities and Exchange Commission for such repurchases.loan.  As of February 29, 2016,December 31, 2018, the Company had repurchased 180,406 shares at an average priceno outstanding amounts against the line of $0.45 under the program.credit.


RMS HIgH-Flo™ Subcutaneous Safety Needle SetsWe continue to be in litigation with a competitor, EMED Technologies Corporation (“EMED”) and have clearance for saleincurred a significant amount of legal fees in Europe, Canadaconnection with that process.  Although the Company believes it has meritorious claims and defenses in the U.S. We believe thatactions and proceedings, their outcomes cannot be predicted with any certainty. If any of these actions against the RMS administration sets represent an improvement in performance and safety over competitive devicesCompany are successful, they could have a material adverse effect on the market. We believe we have sufficient resources to continue marketing the needle sets domesticallyCompany’s business, results of operations, financial condition and internationally.cash flows.


Cash Flows


The following table summarizes our cash flows:


 

Year Ended
February 29, 2016

 

Year Ended
February 28, 2015

 

 

Twelve Months
Ended
December 31, 2018

 

Ten Months
Ended
December 31, 2017

 

Net cash provided by operating activities

 

$

1,914,813

 

$

826,099

 

 

$

1,479,662

 

$

899,912

 

Net cash used in investing activities

 

 

(189,522

)

 

(744,981

)

 

$

(1,729,824

)

$

(219,281

)

Net cash (used in) provided by financing activities

 

 

(80,577

)

 

248,719

 

Net cash provided by/(used in) financing activities

 

$

14,429

 

$

(19,360

)


Operating Activities


Net cash provided by operating activities of $1.9$1.5 million for the fiscal year ended February 29, 2016,December 31, 2108, was primarily attributable to our net income of $0.8$0.9 million, non-cash charges of $0.3 million for depreciation and amortization of long lived tangible and intangible assets, $28,000 of deferred compensation costs and $0.1 million of stock based compensation.  Further adding to the improvement in net cash provided by operating activities was an increase in accounts payablecompensation of $0.4 million, and accrued expense of $0.3 million, a decrease in accounts receivable of $0.3 million and a decrease$0.5 million.  Partially offsetting these was an increase in inventory levels of $0.2 million.  Inventory levels were also much lower than in the fiscal year ended February 28, 2015 due$0.4 million, as we build to initial increases resulting fromincrease our outsourcingreserve of subassemblies for our manufacturing process and increased finished good levels for needle sets in that period.  inventory.


Net cash provided by operating activities of $0.8$0.9 million for the fiscal yearten months ended February 28, 2015December 31, 2017 was primarily attributable to our net income of $0.8$0.9 million, non-cash charges in earnings of $0.3 million for depreciation and amortization of long lived tangible and intangible assets, andstock based compensation of $0.1 million and an increase in accrued expenses of deferred compensation costs, all offset mostly$0.2 million due to increased bonus accrual.  Further adding to the net cash provided by operating activities was an increase in accrued income tax liability of $0.3 million due to increased profitability and an increase in accrued payroll and related taxes of $0.2 million related to a severance accrual for the former Chief Operating Officer.  Partially offsetting these were increases in accounts receivable of $0.4 million, an increase in inventory levels of $0.4$0.3 million in the period as described above as well aswe build inventory and a decrease in accounts payable of $0.3 million related to the payment of legal fees accrued tax liability.at February 28, 2017.


Investing Activities


Our net cash used in investing activities of $0.2$1.7 million for the fiscal year ended February 29, 2016,December 31, 2018 was primarily attributable tofrom the purchase of a certificate of deposit for $1.5 million as well as continued investment in capital expenditures related to purchases of manufacturing equipment and toolingassets and patent costs.  Ourapplications of $0.5 million, all partially offset by net proceeds from certificates of deposits of $0.2 million.  Net cash used in investing activities of $0.7$0.2 million for the fiscal yearten months ended February 28, 2015,December 31, 2017, was primarily attributable to our investment in capital expendituresassets, mostly related to purchases of manufacturingproduction and computer equipment, and tooling, installationfor new patent applications and maintenance of a new clean room and patent costs.existing patents.


- 25 -


Financing Activities


Net cash used by financing activities of $0.1 million for the fiscal year ended February 29, 2016, was made up of the repurchase of our common stock, mostly offset by the issuance of shares for board of director fees and consulting fees.  Net cash provided by financing activities of $0.2 millionwas $14,429 for the fiscal yeartwelve months ended February 28, 2015,December 31, 2018 resulting mostly from the exercise of options less payment for cancelled shares.  Net cash used in financing activities was due$19,360 for the ten months ended December 31, 2017 and was attributable to the salepayment for cancellation of common stock.shares.


- 14 -


Lease commitmentsCommitments


We currently lease a masonry and steel frame building erected on 3.27 acres of land located at 24 Carpenter Road, Chester, New York 10918. This facility is used as our headquarters, for manufacturing operations and research & development.  We are in year seventeentwenty of a twenty-year lease and are responsible for all repairs, maintenance, and upkeep of the space occupied. The terms of the lease call for a monthly lease payment of $11,042 per month. We also contribute payments of 65% of the building’s annual property taxes, amounting to $47,408$50,512 for the fiscal year ended February 29, 2016.December 31, 2018.  On November 14, 2017, we executed a lease extension with our current landlord, which calls for six month extensions beginning March 1, 2019 with the option to renew six times, with monthly lease payments of $12,088.


We also lease 2,500 square feet of warehousestorage space in a nearby industrial park on a year-to-year basis.  In Fiscal 2016,the twelve months ended December 31, 2018, we paid $23,222$20,921 in rent and common charges for this space.


ACCOUNTING POLICIES


Preparation in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes.  These estimates are based on our best knowledge of current events and actions we may undertake in the future.  Estimates used in accounting are, among other items, allowance for excess and obsolete inventory, useful lives for depreciation and amortization of long lived assets, contingencies and allowances for doubtful accounts.  Actual results may ultimately differ from our estimates, although we do not generally believe such differences would materially affect the financial statements in any individual year.


NON-GAAP FINANCIAL MEASURES


Management of the Company believes that investors’ understanding 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.


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.


We disclose and discuss Adjusted EBITDA as a non-GAAP financial measure in our public releases, including quarterly earnings releases, and other filings with the Securities and Exchange Commission. We define Adjusted EBITDA as earnings (net income) before interest, income taxes, depreciation and amortization, reorganization charges and stock compensation expenses. We believe that Adjusted 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 Adjusted EBITDA helps investors meaningfully evaluate and compare our cash flow generating capacity from quarter to quarter and year to year. Adjusted 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 Adjusted EBITDA for such purposes, the Company uses Adjusted EBITDA 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 Adjusted 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.


- 26 -


We also include the use of non-GAAP normalized net income in our earnings releases. RMS management evaluates its business and makes certain operating decisions (e.g., budgeting, forecasting, employee compensation, asset management and resource allocation) using normalized net income. Management believes that because this measure provides it with useful supplemental information for evaluating and operating the business, investors would find it beneficial to have the opportunity to view the business in the same manner. Normalized net income is a measure that focuses on the Company’s operations and facilitates comparison from period to period on a consistent basis.


A reconciliation of our non-GAAP measures is below:


 

 

Twelve Months Ending

Reconciliation of GAAP Net (Loss)/Income

 

December 31,

to Non-GAAP Adjusted EBITDA:

 

2018

 

2017

GAAP Net Income

$

910,570 

$

819,547 

Tax (Benefit)/Expense

 

266,380 

 

390,799 

Depreciation/Amortization

 

309,263 

 

306,562 

Interest Income

 

(28,104)

 

(3,743)

Reorganization Charges

 

996,447 

 

— 

Stock Compensation Expense

 

293,040 

 

66,947 

Non-GAAP Adjusted EBITDA   

$

2,747,596 

$

1,580,112 

 

 

 

 

 

 

 

Twelve Months Ending

Reconciliation of GAAP Net (Loss)/Income

 

December 31,

To Non-GAAP Normalized Net Income:

 

2018

 

2017

GAAP Net (Loss)/Income

$

910,570 

$

819,547 

Reorganization Charges

 

996,447 

 

— 

Tax (Expense) adjustment

 

(209,254)

 

— 

Non-GAAP Normalized Net Income

$

1,697,763 

$

819,547 


Reorganization Charges.  Reorganization charges include costs related to the termination and replacement of C-suite executives and senior management, legal expenses related to activities under the purview of the special committee formed by the Board as previously disclosed, the recruitment of new directors replacing exiting directors and investment banking and legal fees for the recent Common Stock Purchase Agreement the Company executed on December 17, 2018.


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS


In MarchJune 2016, the Financial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2016-09 — Compensation2016-13—Financial Instruments – Stock CompensationCredit Losses (Topic 718): Improvements326); 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 Employee Share-Based Payment Accounting.reflect its current estimate of all expected credit losses. The ASU was issued as partallowance for credit losses is a valuation account that is deducted from the amortized cost basis of the FASB’s simplification initiative and underfinancial assets to present the ASU, the areas of simplification in the update involve several aspects of the accountingnet amount expected to be collected.  For available 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. Thissale debt securities, credit losses should not resultbe measured in a changemanner 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 practice becauseleases 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 guidancescope that is being superseded was never effective.have the contractual right to receive cash.  The amendmentamendments in this ASU isupdate are effective for annual periodsfiscal years beginning after December 15, 2016, and2019, including interim periods within those annual periods.  Early adoptionfiscal years.  The Company is permitted for any entity in any interim or annual period.  If an entity early adoptsassessing the amendments in an interim period, any adjustments should be reflected asimpact of the beginningadoption of the fiscal year that includes that interim period.  An entity that elects early adoption must adopt allASU on its financial statements, disclosure requirements and methods of the amendments in the same period.adoption.


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


- 27 -


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 assessingbelieve the potential impactadoption of this ASU and expect it willmay have a material impact on our consolidated financial conditionassets and liabilities, but not a material impact on the results of operations uponon our financial statements, disclosure requirements and methods of adoption.


In November 2015,July 2018, the FASB issued ASU No. 2015-17 — Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. Prior2018-10 Codification Improvements to Topic 842, Leases.  The amendments in this ASU GAAP required an entity to separate deferred income tax asset and liabilities into current and noncurrent amounts onaffect narrow aspects of the balance sheet. Thisguidance issued in the amendments in ASU requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This ASU is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. This ASU may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented.2016-02. The requirement that deferred tax liabilities and assets be offset and presented as a single amount was not affected by this amendment.   The Company has adoptedamendments in this ASU retrospectively.


- 15 -


In July 2015,related to transition do not include amendments from proposed ASU, Leases (Topic 842): Targeted Improvements, specific to a new and optional transition method to adopt the FASB issued Accounting Standards Update (“ASU”) No. 2015-11—Simplifying the Measurement of Inventory.  Thenew lease requirements in ASU was2016-02. That additional transition method will be issued as part of the FASB’s simplification initiativea forthcoming and under theseparate 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 thewill result in additional amendments to transition paragraphs included in this ASU to have any impact on its financial statements.


In May 2014, FASB issued ASU No. 2014-09—Revenue from Contractsconform 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.additional transition method. The amendments in this updateASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective forupon issuance of this ASU, and the annual reporting periods beginning after December 15, 2016, including interim periods withintransition requirements are the same as those in Topic 842.  For entities that reporting period. Full or modified retrospective adoption is requiredhave not adopted Topic 842, the effective date and early application is not permitted. Ontransition requirements will be the same as the effective date and transition requirements in Topic 842.  In July 9, 2015,2018, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers2018-11, Leases (Topic 606); Deferral842): Targeted Improvements.  The amendments in this ASU affect narrow aspects of the Effective Date, which (a) delaysguidance issued in the effective dateamendments in ASU 2016-02. The amendments in this ASU related to transition do not include amendments from proposed ASU, Leases (Topic 842): Targeted Improvements, specific to a new and optional transition method to adopt the new lease requirements in ASU 2016-02. That additional transition method will be issued as part of a forthcoming and separate ASU 2014-09, Revenue from Contractsthat will result in additional amendments to transition paragraphs included in this ASU to conform 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.  additional transition method.


In March 2016,August 2018, the FASB issued ASU No. 2016-08 Revenue from Contracts with Customers2018-13 Fair Value Measurement (Topic 606); Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which820):  Disclosure Framework – Changes to the Disclosure for Fair Value Measurement.  The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820 based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is intendedpermitted upon issuance of this ASU. An entity is permitted to improve the operabilityearly adopt any removed or modified disclosures upon issuance of this ASU and understandabilitydelay adoption of the implementation guidance on principal versus agent considerations and theadditional disclosures until their 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.date.  The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.


In August 2018, the FASB issued ASU No. 2018-15 Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):  Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.  The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU.  The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, for all entities.  The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.  The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods 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 effect on our financial condition or results of operations.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Not applicable.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


- 1628 -


Report of Independent Registered Public Accounting Firm


To the Shareholders and the Board of Directors and Stockholders

Repro Medof Repro-Med Systems, Inc.

Chester, New York


Opinion on the Financial Statements


We have audited the accompanying balance sheets of Repro MedRepro-Med Systems, Inc. (the “Company”) as of February 29, 2016December 31, 2018 and February 28, 2015, andDecember 31, 2017, the related statements of operations, stockholders’changes in equity, and cash flows for the years then ended.  twelve months ended December 31, 2018 and the ten months ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”).  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and December 31, 2017 and the results of its operations and its cash flows for the twelve months ended December 31, 2018 and the ten months ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.


Basis for Opinion


These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  OurAs part of our audits, included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes


Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements, assessingstatements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements.  We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Repro Med Systems, Inc. as of February 29, 2016 and February 28, 2015, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.



/s/ McGrail Merkel Quinn & Associates, P.C.


We have served as the Company’s auditor since 2014.


Scranton, Pennsylvania

May 13, 2016March 5, 2019


- 1729 -


REPRO MED SYSTEMS, INC.

BALANCE SHEETS


 

February 29,

 

February 28,

 

 

December 31,

 

December 31,

 

 

2016

 

2015

 

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

ASSETS

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,201,949

 

$

2,557,235

 

 

$

3,738,803

 

$

3,974,536

 

Certificates of deposit

 

 

261,118

 

 

259,789

 

 

 

1,517,927

 

 

263,269

 

Accounts receivable less allowance for doubtful accounts of $18,648 and $29,865 for February 29, 2016, and February 28, 2015, respectively

 

 

1,350,180

 

 

1,623,695

 

Accounts receivable less allowance for doubtful accounts of $37,500 and $77,067 for December 31, 2018, and December 31, 2017, respectively

 

 

1,425,854

 

 

1,861,949

 

Inventory

 

 

1,040,277

 

 

1,226,636

 

 

 

2,103,879

 

 

1,658,681

 

Prepaid expenses

 

 

265,123

 

 

240,688

 

 

 

246,591

 

 

170,739

 

TOTAL CURRENT ASSETS

 

 

7,118,647

 

 

5,908,043

 

 

 

9,033,054

 

 

7,929,174

 

Property and equipment, net

 

 

996,822

 

 

1,161,432

 

 

 

858,781

 

 

836,283

 

Patents, net of accumulated amortization of $147,380 and $134,552 at February 29, 2016 and February 28, 2015, respectively

 

 

247,691

 

 

180,558

 

Other Assets

 

 

31,140

 

 

31,140

 

Patents, net of accumulated amortization of $239,581 and $203,768 at December 31, 2018 and December 31, 2017, respectively

 

 

632,156

 

 

483,821

 

Deferred tax asset

 

 

1,466

 

 

—

 

Other assets

 

 

19,582

 

 

31,582

 

TOTAL ASSETS

 

$

8,394,300

 

$

7,281,173

 

 

$

10,545,039

 

$

9,280,860

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred capital gain - current portion

 

$

22,481

 

$

22,481

 

Deferred capital gain - current

 

$

3,763

 

$

22,481

 

Accounts payable

 

 

307,764

 

 

243,217

 

 

 

453,498

 

 

454,398

 

Accrued expenses

 

 

499,406

 

 

304,041

 

 

 

688,649

 

 

658,060

 

Accrued payroll and related taxes

 

 

148,766

 

 

121,917

 

 

 

421,714

 

 

334,903

 

Accrued tax liability

 

 

129,497

 

 

—

 

 

 

16,608

 

 

115,854

 

Total Current Liabilities

 

 

1,107,914

 

 

691,656

 

Deferred capital gain -less current portion

 

 

44,976

 

 

67,454

 

TOTAL CURRENT LIABILITIES

 

 

1,584,232

 

 

1,585,696

 

Deferred capital gain –long term

 

 

—

 

 

3,762

 

Deferred tax liability

 

 

123,111

 

 

248,607

 

 

 

—

 

 

21,675

 

Total Liabilities

 

 

1,276,001

 

 

1,007,717

 

TOTAL LIABILITIES

 

 

1,584,232

 

 

1,611,133

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 50,000,000 shares authorized, 40,487,532 and 40,347,292 shares issued; 37,966,501 and 38,006,667 shares outstanding at February 29, 2016, and February 28, 2015, respectively

 

 

404,875

 

 

403,473

 

Common stock, $0.01 par value, 75,000,000 shares authorized, 40,932,911 and 40,731,529 shares issued; 38,195,680 and 37,994,298 shares outstanding at December 31, 2018, and December 31, 2017, respectively

 

 

409,329

 

 

407,315

 

Additional paid-in capital

 

 

3,968,342

 

 

3,855,188

 

 

 

4,595,214

 

 

4,216,718

 

Retained earnings

 

 

3,019,940

 

 

2,237,076

 

 

 

4,300,468

 

 

3,389,898

 

 

 

7,393,157

 

 

6,495,737

 

 

 

9,305,011

 

 

8,013,931

 

Less: Treasury stock, 2,521,031 shares and 2,340,625 shares at February 29, 2016, and February 28, 2015, respectively, at cost

 

 

(246,858

)

 

(166,281

)

Less: Deferred compensation cost

 

 

(28,000

)

 

(56,000

)

Less: Treasury stock, 2,737,231 shares at December 31, 2018 and December 31, 2017, respectively, at cost

 

 

(344,204

)

 

(344,204

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

7,118,299

 

 

6,273,456

 

 

 

8,960,807

 

 

7,669,727

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

8,394,300

 

$

7,281,173

 

 

$

10,545,039

 

$

9,280,860

 


The accompanying notes are an integral part of these Financial Statements.


- 1830 -


REPRO MED SYSTEMS, INC.

STATEMENTS OF OPERATIONS


 

For the years ended

 

 

For the

 

 

February 29,

 

February 28,

 

 

Twelve Months
Ended
December 31,

 

Ten Months
Ended
December 31

 

 

2016

 

2015

 

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

NET SALES

 

$

12,247,338

 

$

11,244,660

 

 

$

17,353,737

 

$

13,313,894

 

Cost of goods sold

 

 

4,644,435

 

 

4,556,961

 

 

 

6,543,249

 

 

5,174,946

 

Gross Profit

 

 

7,602,903

 

 

6,687,699

 

 

 

10,810,488

 

 

8,138,948

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

5,942,671

 

4,788,279

 

 

 

9,095,565

 

 

6,594,570

 

Research and development

 

207,282

 

468,154

 

 

 

241,124

 

 

50,587

 

Depreciation and amortization

 

 

271,566

 

 

283,875

 

 

 

309,263

 

 

257,257

 

Total Operating Expenses

 

 

6,421,519

 

 

5,540,308

 

 

 

9,645,952

 

 

6,902,414

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Operating Profit

 

 

1,181,384

 

 

1,147,391

 

 

 

1,164,536

 

 

1,236,534

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Operating Expense/(Income)

 

 

 

 

 

Interest expense

 

3,412

 

512

 

Loss on foreign currency exchange

 

26,204

 

77,966

 

Other expense and interest income, net

 

 

9,198

 

 

(5,623

)

Non-Operating Income/(Expense)

 

 

 

 

 

 

 

Gain on sale of fixed asset

 

 

4,930

 

 

—

 

(Loss)/Gain on foreign currency exchange

 

 

(20,620

)

 

68,566

 

Interest income

 

 

28,104

 

 

2,420

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE TAXES

 

1,142,570

 

1,074,536

 

 

 

1,176,950

 

 

1,307,520

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

359,706

 

 

321,419

 

 

 

266,380

 

 

402,563

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

782,864

 

$

753,117

 

 

$

910,570

 

$

904,957

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.02

 

$

0.02

 

 

$

0.02

 

$

0.02

 

Diluted

 

$

0.02

 

$

0.02

 

 

$

0.02

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

37,988,954

 

 

37,634,064

 

 

 

38,128,260

 

 

37,897,632

 

Diluted

 

 

37,988,954

 

 

37,634,064

 

 

 

38,921,622

 

 

38,445,482

 


The accompanying notes are an integral part of these financial statements.


- 1931 -


REPRO MED SYSTEMS, INC.

STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE YEARSTWELVE MONTHS ENDED FEBRUARY 29, 2016DECEMBER 31, 2018 AND FEBRUARY 28, 2015THE TEN MONTHS ENDED DECEMBER 31, 2017


 

 

 

 

 

 

Additional

 

 

 

 

 

Deferred

 

Total

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Treasury

 

Compensation

 

Stockholders’

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Stock

 

Cost

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, FEBRUARY 28, 2014

 

38,936,667

 

$

389,367

 

$

3,512,294

 

$

1,483,959

 

$

(142,000

)

$

(51,750

)

$

5,191,870

 

Issuance of common stock awards

 

420,000

 

 

4,200

 

 

79,800

 

 

—

 

 

—

 

 

(84,000

)

 

—

 

Issuance of common stock

 

1,000,000

 

 

10,000

 

 

263,000

 

 

—

 

 

—

 

 

—

 

 

273,000

 

Cancellation of Unvested common Stock

 

(9,375

)

 

(94

)

 

94

 

 

—

 

 

—

 

 

—

 

 

—

 

Purchase of treasury common stock

 

—

 

 

—

 

 

—

 

 

—

 

 

(24,281

)

 

—

 

 

(24,281)

 

Amortization of deferred compensation cost

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

79,750

 

 

79,750

 

Net income for the year ended February 28, 2015

 

—

 

 

—

 

 

—

 

 

753,117

 

 

—

 

 

—

 

 

753,117

 

BALANCE, FEBRUARY 28, 2015

 

40,347,292

 

$

403,473

 

$

3,855,188

 

$

2,237,076

 

$

(166,281

)

$

(56,000

)

$

6,273,456

 

Issuance of Common Stock

 

140,240

 

 

1,402

 

 

113,154

 

 

—

 

 

—

 

 

—

 

 

114,556

 

Purchase of treasury common stock

 

—

 

 

—

 

 

—

 

 

—

 

 

(80,577

)

 

—

 

 

(80,577

)

Amortization of deferred compensation cost

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

28,000

 

 

28,000

 

Net income for the year ended February 29, 2016

 

—

 

 

—

 

 

—

 

 

782,864

 

 

—

 

 

—

 

 

782,864

 

BALANCE, FEBRUARY 29, 2016

 

40,487,532

 

$

404,875

 

$

3,968,342

 

$

3,019,940

 

$

(246,858

)

$

(28,000

)

$

7,118,299

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Treasury

 

Stockholders’

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Stock

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE,
FEBRUARY 28, 2017

 

40,558,429

 

$

405,584

 

$

4,129,726

 

$

2,484,941

 

$

(344,204

)

$

6,676,047

 

Issuance of stock based compensation

 

217,100

 

 

2,171

 

 

110,329

 

 

—

 

 

—

 

 

112,500

 

Compensation expense related to stock options

 

—

 

 

—

 

 

(4,417

)

 

—

 

 

—

 

 

(4,417

)

Cancellation of common stock

 

(44,000

)

 

(440

)

 

(18,920

)

 

—

 

 

—

 

 

(19,360

)

Net income for the year ended December 31, 2017

 

—

 

 

—

 

 

—

 

 

904,957

 

 

—

 

 

904,957

 

BALANCE,
DECEMBER 31, 2017

 

40,731,529

 

$

407,315

 

$

4,216,718

 

$

3,389,898

 

$

(344,204

)

$

7,669,727

 

Issuance of stock based compensation

 

99,134

 

 

991

 

 

117,050

 

 

—

 

 

—

 

 

118,041

 

Compensation expense related to stock options

 

—

 

 

—

 

 

248,040

 

 

—

 

 

—

 

 

248,040

 

Cancellation of common stock

 

(22,752

)

 

(227

)

 

(36,594

)

 

—

 

 

—

 

 

(36,821

)

Issuance of Option Exercised

 

125,000

 

 

1,250

 

 

50,000

 

 

—

 

 

—

 

 

51,250

 

Net income for the year ended December 31, 2018

 

—

 

 

—

 

 

—

 

 

910,570

 

 

—

 

 

910,570

 

BALANCE,
DECEMBER 31, 2018

 

40,932,911

 

$

409,329

 

$

4,595,214

 

$

4,300,468

 

$

(344,204

)

$

8,960,807

 


The accompanying notes are an integral part of these Financial Statements.


- 2032 -


REPRO MED SYSTEMS, INC.

STATEMENTS OF CASH FLOWS


 

For the Years Ended

 

 

For the

 

 

February 29,

 

February 28,

 

 

Twelve Months
Ended
December 31,

 

Ten Months
Ended
December 31,

 

 

2016

 

2015

 

 

2018

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Net income

 

$

782,864

 

$

753,117

 

Net Income

 

$

910,570

 

$

904,957

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Amortization of deferred compensation cost

 

28,000

 

79,750

 

Stock based compensation expense

 

114,556

 

—

 

 

366,081

 

 

108,083

 

Depreciation and amortization

 

271,566

 

283,875

 

 

309,263

 

 

257,257

 

Deferred capital gain - building lease

 

(22,478

)

 

(22,482

)

Gain on sale of fixed asset

 

(4,930

)

 

—

 

Deferred capital gain – building lease

 

(22,480

)

 

(18,734

)

Deferred taxes

 

(125,496

)

 

93,607

 

 

(23,141

)

 

(60,747

)

Loss on disposal of fixed assets

 

14,104

 

281

 

Allowance for returns and doubtful accounts

 

(12,912

)

 

7,366

 

Provision for returns and doubtful accounts

 

(39,567

)

 

58,941

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Decrease in accounts receivable

 

286,427

 

113,752

 

Decrease (Increase) in inventory

 

186,359

 

(407,913

)

(Increase) Decrease in prepaid expense

 

(24,435

)

 

5,079

 

Increase in other assets

 

—

 

(87

)

Increase (Decrease) in accounts payable

 

64,547

 

(3,405

)

Decrease/(Increase) in accounts receivable

 

475,662

 

 

(418,860

)

Increase in inventory

 

(445,198

)

 

(304,978

)

(Increase)/Decrease in prepaid expense

 

(75,852

)

 

5,217

 

Decrease/(Increase) in other assets

 

12,000

 

 

(93

)

Decrease in accounts payable

 

(900

)

 

(318,030

)

Increase in accrued payroll and related taxes

 

26,849

 

48,941

 

 

86,811

 

 

157,885

 

Increase in accrued expense

 

195,365

 

40,576

 

 

30,589

 

 

240,703

 

Increase (Decrease) in accrued income tax liability

 

 

129,497

 

 

(166,358

)

(Decrease)/Increase in accrued tax liability

 

 

(99,246

)

 

288,311

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

1,914,813

 

 

826,099

 

 

 

1,479,662

 

 

899,912

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Payments for property and equipment

 

(121,782

)

 

(591,413

)

Proceeds on disposal of fixed assets

 

13,550

 

—

 

Payments for capital expenditures

 

(297,018

)

 

(137,817

)

Payments for patents

 

(79,961

)

 

(152,369

)

 

(184,148

)

 

(80,509

)

Purchase of certificates of deposit

 

 

(1,329

)

 

 

(1,199

)

Purchase of certificate of deposit

 

(1,500,000

)

 

(955

)

Proceeds from certificates of deposit

 

245,342

 

 

—

 

Proceeds on sale of fixed assets

 

 

6,000

 

 

—

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(189,522

)

 

 

(744,981

)

 

 

(1,729,824

)

 

(219,281

)

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Purchase of treasury stock

 

(80,577

)

 

(24,281

)

Proceeds from sale of securities, net of legal and other fees of $15,000

 

 

—

 

 

273,000

 

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

 

 

(80,577

)

 

 

248,719

 

Stock issuances

 

51,250

 

 

—

 

Payment for cancelled shares

 

 

(36,821

)

 

(19,360

)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

14,429

 

 

(19,360

)

 

 

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

1,644,714

 

329,837

 

Net (Decrease) Increase in CASH AND CASH EQUIVALENTS

 

(235,733

)

 

661,271

 

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

 

 

2,557,235

 

 

2,227,398

 

 

 

3,974,536

 

 

3,313,265

 

CASH AND CASH EQUIVALENTS, END OF YEAR

 

$

4,201,949

 

$

2,557,235

 

 

$

3,738,803

 

$

3,974,536

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Information

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the years for:

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

3,412

 

$

512

 

 

$

—

 

$

—

 

Taxes

 

$

255,000

 

$

494,891

 

 

$

378,000

 

$

175,000

 

NON-CASH FINANCING AND INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock as compensation

 

$

114,556

 

$

84,000

 

 

$

118,041

 

$

112,500

 


The accompanying notes are an integral part of these Financial Statements.


- 2133 -


REPRO MED SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

FEBRUARY 29, 2016DECEMBER 31, 2018 AND FEBRUARY 28, 2015DECEMBER 31, 2017


NOTE 1  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


NATURE OF OPERATIONS


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


CASH AND CASH EQUIVALENTS


For purposes of the statement of cash flows, the Company considers all short-term investments with an original maturity of three months or less to be cash equivalents.   The Company holds cash in excess of $250,000 at multiple depositories,its depository, which exceeds the FDIC insurance limits and is, therefore, uninsured.


CERTIFICATES OF DEPOSIT


The certificatescertificate of deposit areis recorded at cost plus accrued interest. The certificatescertificate of deposit earnearns interest at a rate of 0.35% to 0.55%1.73% and maturematures in June 2016 and February 2017.May 2019.


INVENTORY


Inventories of raw materials are stated at the lower of standard cost, which approximates average cost, or market value including allocable overhead. Work-in-process and finished goods are stated at the lower of standard cost or market value and include direct labor and allocable overhead.


PATENTS


Costs incurred in obtaining patents have been capitalized and are being amortized over the legal life of the patents.


INCOME TAXES


Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences.


The Company believes that it has no uncertain tax positions requiring disclosure or adjustment.  Generally, tax years starting with 20122016 are subject to examination by income tax authorities.


PROPERTY, EQUIPMENT, AND DEPRECIATION


Property and equipment is stated at cost and is depreciated using the straight-line method over the estimated useful lives of the respective assets.


STOCK-BASED COMPENSATION


The Company maintains various long-term incentive stock benefit plans under which it grants stock options and restricted stock awards to certain directorsexecutives, key employees and key employees.consultants.  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.date.


- 2234 -


NET INCOME PER COMMON SHARE


Basic earnings per share are computed on the weighted average of common shares outstanding during each year. Diluted earnings per share include only an increase in the weighted average shares by the common shares issuable upon exercise of employee, director and directorconsultant stock options (Note(See Note 6).


 

Fiscal Year Ended

 

 

Fiscal Year Ended

 

 

February 29, 2016

 

February 28, 2015

 

 

Twelve Months
December 31, 2018

 

Ten Months
December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

782,864

 

$

753,117

 

 

$

910,570

 

$

904,957

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Outstanding Shares:

 

 

 

 

 

 

 

 

 

 

 

Outstanding shares

 

37,988,954

 

37,634,064

 

 

38,128,260

 

 

37,897,632

 

Option shares includable

 

 

—

 

 

—

 

 

 

793,362

 

 

547,850

 

 

 

37,988,954

 

 

37,634,064

 

 

 

38,921,622

 

 

38,445,482

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.02

 

$

0.02

 

 

$

0.02

 

$

0.02

 

Diluted

 

$

0.02

 

$

0.02

 

 

$

0.02

 

$

0.02

 


USE OF ESTIMATES IN THE FINANCIAL STATEMENTS


The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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.


REVENUE RECOGNITION


SalesThe Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09—Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.  We adopted this ASU effective January 1, 2018 on a full retrospective basis.  Adoption of manufactured products are recorded when shipment occurs. this standard did not result in significant changes to our accounting policies, business processes, systems or controls, or have a material impact on our financial position, results of operations and cash flows or related disclosures.  As such, prior period financial statements were not recast.


The Company’s revenue stream is derivedrevenues result from the sale of an assembled product. Other serviceproducts.  We recognize revenues are recorded aswhen shipment occurs and at which point the service is performed.customer obtains control and ownership of the goods.  Shipping and handling costs generally are billed to customers and are included in sales.


The Company generally does not accept return of goods shipped unless it is a Company error.  The only credits provided to customers are for defective merchandise.  The Company warrants the syringe driver from defects in materials and workmanship under normal use and the warranty does not include a performance obligation.  The costs under the warranty are expensed as incurred.


Provisions for distributor pricing and annual customer volume rebates are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded or when it’s probable the annual growth target will be achieved.  Rebates are provided to distributors for the difference in selling price to distributor and pricing specified to select customers.


- 35 -


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS


In MarchJune 2016, the Financial Accounting Standards Board (“FASB”)FASB issued ASU No. 2016-09 — Compensation2016-13—Financial Instruments – Stock CompensationCredit Losses (Topic 718): Improvements326); 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 Employee Share-Based Payment Accounting.reflect its current estimate of all expected credit losses. The ASU was issued as partallowance for credit losses is a valuation account that is deducted from the amortized cost basis of the FASB’s simplification initiative and underfinancial assets to present the ASU, the areas of simplification in the update involve several aspects of the accountingnet amount expected to be collected.  For available 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. Thissale debt securities, credit losses should not resultbe measured in a changemanner 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 practice becauseleases 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 guidancescope that is being superseded was never effective.have the contractual right to receive cash.  The amendmentamendments in this ASU isupdate are effective for annual periodsfiscal years beginning after December 15, 2016, and2019, including interim periods within those annual periods.  Early adoptionfiscal years.  The Company is permitted for any entity in any interim or annual period.  If an entity early adoptsassessing the amendments in an interim period, any adjustments should be reflected asimpact of the beginningadoption of the fiscal year that includes that interim period.  An entity that elects early adoption must adopt allthis ASU on its financial statements, disclosure requirements and methods of the amendments in the same period.adoption.


- 23 -


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 assessingbelieve the potential impactadoption of this ASU and expect it willmay have a material impact on our consolidated financial conditionassets and liabilities, but not a material impact on the results of operations uponon our financial statements, disclosure requirements and methods of adoption.


In November 2015,July 2018, the FASB issued ASU No. 2015-17 — Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. Prior2018-10 Codification Improvements to Topic 842, Leases.  The amendments in this ASU GAAP required an entity to separate deferred income tax asset and liabilities into current and noncurrent amounts onaffect narrow aspects of the balance sheet. Thisguidance issued in the amendments in ASU requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This ASU is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. This ASU may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented.2016-02. The requirement that deferred tax liabilities and assets be offset and presented as a single amount was not affected by this amendment.   The Company has adoptedamendments in this ASU retrospectively.


In July 2015,related to transition do not include amendments from proposed ASU, Leases (Topic 842): Targeted Improvements, specific to a new and optional transition method to adopt the FASB issued Accounting Standards Update (“ASU”) No. 2015-11—Simplifying the Measurement of Inventory.  Thenew lease requirements in ASU was2016-02. That additional transition method will be issued as part of the FASB’s simplification initiativea forthcoming and under theseparate 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 thewill result in additional amendments to transition paragraphs included in this ASU to have any impact on its financial statements.


In May 2014, FASB issued ASU No. 2014-09—Revenue from Contractsconform 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.additional transition method. The amendments in this updateASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective forupon issuance of this ASU, and the annual reporting periods beginning after December 15, 2016, including interim periods withintransition requirements are the same as those in Topic 842.  For entities that reporting period. Full or modified retrospective adoption is requiredhave not adopted Topic 842, the effective date and early application is not permitted. Ontransition requirements will be the same as the effective date and transition requirements in Topic 842.  In July 9, 2015,2018, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers2018-11, Leases (Topic 606); Deferral842): Targeted Improvements.  The amendments in this ASU affect narrow aspects of the Effective Date, which (a) delaysguidance issued in the effective dateamendments in ASU 2016-02. The amendments in this ASU related to transition do not include amendments from proposed ASU, Leases (Topic 842): Targeted Improvements, specific to a new and optional transition method to adopt the new lease requirements in ASU 2016-02. That additional transition method will be issued as part of a forthcoming and separate ASU 2014-09, Revenue from Contractsthat will result in additional amendments to transition paragraphs included in this ASU to conform 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.  additional transition method.


In March 2016,August 2018, the FASB issued ASU No. 2016-08 Revenue from Contracts with Customers2018-13 Fair Value Measurement (Topic 606); Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which820):  Disclosure Framework – Changes to the Disclosure for Fair Value Measurement.  The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820 based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is intendedpermitted upon issuance of this ASU. An entity is permitted to improve the operabilityearly adopt any removed or modified disclosures upon issuance of this ASU and understandabilitydelay adoption of the implementation guidance on principal versus agent considerations and theadditional disclosures until their 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.date.  The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.


- 36 -


In August 2018, the FASB issued ASU No. 2018-15 Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):  Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.  The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU.  The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, for all entities.  The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.  The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods 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 effect on our financial condition or results of operations.


FAIR VALUE OF FINANCIAL INSTRUMENTS


The carrying amounts reported in the balance sheet for cash, trade receivables, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments.


- 24 -


ACCOUNTING FOR LONG-LIVED ASSETS


The Company reviews its long-lived assets for impairment at least annually or whenever the circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. As of February 29, 2016,December 31, 2018, the Company does not believe that any of its assets are impaired.


NOTE 2  INVENTORY


Inventory consists of:


 

February 29, 2016

 

February 28, 2015

 

 

 

 

 

 

 

 

 

December 31, 2018

 

December 31, 2017

 

Raw materials and Work-in-process

 

$

600,028

 

$

829,242

 

 

$

1,155,632

 

$

1,042,367

 

Finished goods

 

 

478,312

 

 

471,883

 

 

 

1,020,930

 

 

677,762

 

 

 

1,078,340

 

 

1,301,125

 

 

 

 

 

 

 

 

Total

 

 

2,176,562

 

 

1,720,129

 

Less: reserve for obsolete inventory

 

 

38,063

 

 

74,489

 

 

 

72,683

 

 

61,448

 

Inventory, net

 

$

1,040,277

 

$

1,226,636

 

 

$

2,103,879

 

$

1,658,681

 


NOTE 3  PROPERTY AND EQUIPMENT


Property and equipment consists of the following at:


 

February 29, 2016

 

February 28, 2015

 

Estimated Useful Lives

 

 

December 31, 2018

 

December 31, 2017

 

Estimated
Useful Lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

$

54,030

 

$

54,030

 

 

 

 

 

$

54,030

 

$

54,030

 

 

 

 

Building

 

 

171,094

 

 

171,094

 

 

20 years

 

 

 

171,094

 

 

171,094

 

 

20 years

 

Furniture, office equipment, and leasehold improvements

 

 

923,394

 

 

887,959

 

 

3-10 years

 

 

 

1,058,507

 

 

1,052,501

 

 

3-10 years

 

Manufacturing equipment and tooling

 

 

961,486

 

 

963,843

 

 

3-12 years

 

 

 

1,279,865

 

 

1,075,471

 

 

3-12 years

 

 

 

2,110,004

 

 

2,076,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

2,563,496

 

 

2,353,096

 

 

 

 

Less: accumulated depreciation

 

 

1,113,182

 

 

915,494

 

 

 

 

 

 

1,704,715

 

 

1,516,813

 

 

 

 

Property and equipment, net

 

$

996,822

 

$

1,161,432

 

 

 

 

 

$

858,781

 

$

836,283

 

 

 

 


Depreciation expense was $258,738$273,450 and $268,759$233,626 for the yearstwelve months ended February 29, 2016,December 31, 2018, and February 28, 2015,the ten months ended December 31, 2017, respectively.


- 37 -


NOTE 4  RELATED PARTY TRANSACTIONS


On December 20, 2013,17, 2018, the Company entered into a Common Stock Purchase Agreement (the “Agreement”) with Andrew I. Sealfon and other sellers set forth in the Agreement and purchasers listed in the Agreement in a private placement transaction.  Pursuant to that agreement, we executed anagreed to file a resale registration statement.  The existing stockholders party to the agreement effective March 1, 2014, with a Company director, Dr.included Andrew I. Sealfon and Paul Mark Baker, then directors of RMS, together with certain members of their respective family members.  Andrew I. Sealfon, Paul Mark Baker, Andrea Baker, Brad Sealfon and Mary Sealfon, existing stockholders party to provide clinical researchthe agreement, received an aggregate of $12,218,977 in connection with the transaction. One of the purchasers was Horton Freedom, L.P., an affiliate of Horton Capital Partners, LLC, who paid $3,842,036 in connection with the transaction.  At the time of the purchase, Horton Capital Partners, LLC beneficially owned more than 5% of our outstanding common stock. Joseph M. Manko, Jr. is the managing member of Horton Capital Partners, LLC and support services relatedhas served as a director of the Company since May 2016.


In connection with the purchase agreement, also on December 17, 2018, we entered into an Agreement Regarding Stock Sale with Mr. Sealfon and a separate Agreement Regarding Stock Sale with Dr. Baker.  Pursuant to newthese Separation Agreements, Mr. Sealfon and enhanced applications for the FREEDOM60® Syringe Infusion System. Authorized by theDr. Baker tendered their respective resignations from our Board of Directors effective with the first closing of the transaction under the purchase agreement, which occurred on December 18, 2018.  Each of these separation agreements provides for payment of 420,000 shares of common stock valued at $0.20 per share over a three-year period.  Amortization amounted to $28,000 for the mutual general release by us, on the one hand, and each of the fiscal years ended February 29, 2016Mr. Sealfon and February 28, 2015.  In August, 2014, Dr. Baker, was paid a previously approved bonus of $25,000 to assist him in covering taxes due on the grantother hand, of common stock.


On October 21, 2015, Cyril Narishkin was appointedall claims against the other arising or occurring on or before the date thereof, subject to certain exceptions. Pursuant 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,Sealfon, Mr. Sealfon has agreed to support our expanded management teamcertain non-competition and accelerate our growth opportunities under his rolenon-solicitation restrictions for a period of Interim Chief Operating Officer.  The agreement provides for payment of $16,000 per month, of which half is to be paid in cash and half is to be paid in shares of common stock.  Effective January 1, 2016,six months after the agreement provides for the same payment of $16,000 per month, of which seventy-five percent is to be paid in cash and twenty-five percent is to be paid in shares of common stock.first closing.


On April 26, 2016, Cyril Narishkin was appointed President of the Company.


- 25 -


LEASED AIRCRAFT


The Company leasesFrom 1992 to 2018, we leased an aircraft from a company controlled by theAMI Aviation, Inc., of which our former President and Chief Executive Officer.Officer, Andrew Sealfon, was a majority shareholder. The lease payments were $21,500$9,045 for eachthe year ended December 31, 2018 and $13,421 for the ten months ended December 31, 2017.  Upon the termination of the years ended February 29, 2016,Mr. Sealfon as President and February 28, 2015. The original lease agreement has expired andChief Executive Officer on July 25, 2018, the Company is currently on a month-to-month basis for rental payments.ceased leasing this aircraft.


BUILDING LEASE


Mr.In February 2011, Mark Pastreich a director,joined our board of directors.  Mr. Pastreich is a principal in the entity that owns the building leased by Company. The Company isus for our corporate headquarters and manufacturing facility at 24 Carpenter Road, Chester, New York 10918.  We are in year seventeentwenty of a twenty-year lease.  There have been no changesWith a monthly lease amount of $11,042, the lease payments were $132,504 for the twelve months ended December 31, 2018, and $110,420 for the ten months ended December 31, 2017.  The Company also paid property taxes for the twelve months ended December 31, 2018 in the amount of $50,072 and $41,959 for the ten months ended December 31, 2017.  On November 14, 2017, we executed a lease extension, which calls for six month extensions beginning March 1, 2019 with the option to renew six times at monthly lease terms since his directorship and none are expected through the lifeamount of the current lease.$12,088.


NOTE 5  STOCKHOLDERS’ EQUITY


On August 8, 2014, we executed an agreement with Horton Capital Partners Fund, an institutional investor based in Philadelphia, PA, to sell one million shares of our common stock and warrants to purchase an additional one million shares of common stock at an exercise price of $0.45 per share.  The aggregate purchase price was $0.3 million.


On September 30, 2015,June 29, 2016, 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 Outstandingoutstanding 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 February 29, 2016,September 30, 2018, the Company had repurchased 180,406396,606 shares at an average price of $0.45$0.45. In June 2017, management of the Company decided to discontinue repurchasing its outstanding common stock under the program.program for an undetermined period of time to utilize cash for capital investments needed to expand the business.


NOTE 6   STOCK-BASED COMPENSATION


In July 2012, 1,465,000 shares were authorized to issue to employees as share compensation valued at $0.18 per share, the market value on the date of the board authorization. The value of these shares will be amortized into operations over the one to two year restriction on the shares. Amortization amounted to zero and $51,750 for the years ended February 28,On June 29, 2016, and February 28, 2015, respectively.


On September 30, 2015, the Board of Directors approvedamended the 2015 Stock Option Plan authorizing the Company to grant awards to certain executives, key employees, and consultants under the plan, at fair market value, subject to shareholder approvalwhich was approved by shareholders at the Annual Meeting to be held on July 27,September 6, 2016.  TheCurrently, the total number of shares of common stock of the Company, par value $.01 per share (“Common Stock”),Stock, with respect to which awards may be granted pursuant to the Plan, shallmay not exceed 2,000,000 shares.  4,000,000.  On February 20, 2019, our Board of Directors approved an increase to the number of shares authorized under the plan to 6,000,000, subject to shareholder approval at the 2019 Annual Meeting of Shareholders.  


As of February 29, 2016,December 31, 2018, the Company awarded 1,060,000had 2,419,000 options outstanding to certain executives, and key employees and consultants under the plan.Plan.


- 38 -


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.  Directors include Dr. Mark Baker, Mr. Mark Pastreich, Mr. Arthur Radin and Mr. Cyril Narishkin.  For purposes of director compensation, Mr. Narishkin will receive $25,000 annually in addition to his payments under his consulting agreement.  As of February 29, 2016, each director was paid $12,500 of which half was paid in cash and half in common stock of which each director received 14,566 in common shares.  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 fiscal year ended February 29, 2016December 31, 2018 and February 28, 2015December 31, 2017 was $0.19$0.83 and zero,$0.29, 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 fiscal year ended February 29, 2016.December 31, 2018 and December 31, 2017. 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:valued.


February 29, 2016

February 28, 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%

—

 

 

December 31, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

Dividend yield

 

 

0.00%

 

 

0.00%

 

Expected Volatility

 

 

61.1-65.2%

 

 

70.1%-72.2%

 

Weighted-average volatility

 

 

—

 

 

—

 

Expected dividends

 

 

—

 

 

—

 

Expected term (in years)

 

 

5-10 Years

 

 

5 Years

 

Risk-free rate

 

 

2.8-3.15%

 

 

2.3%-2.36%

 


- 26 -


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


 

February 29, 2016

 

February 28, 2015

 

 

December 31, 2018

 

December 31, 2017

 

 

Shares

 

Weighted
Average
Exercise
Price

 

Shares

 

Weighted
Average
Exercise
Price

 

 

Shares

 

Weighted
Average
Exercise
Price

 

Shares

 

Weighted
Average
Exercise
Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 1

 

—

 

$

—

 

 

—

 

$

—

 

Outstanding at January 1

 

1,038,000

 

$

0.41

 

 

1,345,000

 

$

0.39

 

Granted

 

1,155,000

 

$

0.36-0.38

 

 

—

 

$

—

 

 

1,518,000

 

$

1.34

 

 

318,000

 

$

0.49

 

Exercised

 

—

 

$

—

 

 

—

 

$

—

 

 

125,000

 

$

0.41

 

 

—

 

$

—

 

Forfeited

 

95,000

 

$

0.36

 

 

—

 

$

—

 

 

12,000

 

$

0.87

 

 

625,000

 

$

0.39

 

Outstanding at February 29,

 

1,060,000

 

$

0.36-0.38

 

 

—

 

$

—

 

Options exercisable at February 29,

 

—

 

$

—

 

 

—

 

$

—

 

Outstanding at year end

 

2,419,000

 

$

1.00

 

 

1,038,000

 

$

0.41

 

Options exercisable

 

785,094

 

$

0.55

 

 

737,010

 

$

0.38

 

Weighted average fair value of options granted during the period

 

—

 

$

—

 

 

—

 

$

—

 

 

 

 

$

0.83

 

 

—

 

$

0.29

 

Stock-based compensation expense

 

—

 

$

50,413

 

 

—

 

$

—

 

 

 

 

$

248,040

 

 

—

 

$

(4,417

) 


Total stock-based compensation expense, net of forfeitures, for stock option awards totaled $50,413$248,040 and zero$(4,417) for the fiscal year ended February 29, 2016December 31, 2018 and February 28, 2015,December 31, 2017, respectively.


The weighted-average grant-date fair value of options granted during fiscal yearstwelve months ended February 29, 2016December 31, 2018 and February 28, 2015the ten months ended December 31, 2017 was $201,890$1,255,234 and zero,$93,115 respectively. The total intrinsic value of options exercised during fiscal yearsthe twelve months ended February 29, 2016December 31, 2018 and February 28, 2015,the ten months ended December 31, 2017, was $51,250 and zero for both periods.respectively.


The following table presents information pertaining to options outstanding at February 29, 2016:December 31, 2018:


Range of Exercise Price

 

Number
Outstanding

 

Weighted
Average
Remaining
Contractual
Life

 

Weighted
Average
Exercise
Price

 

Number
Exercisable

 

Weighted
Average
Exercise
Price

 

 

Number
Outstanding

 

Weighted
Average
Remaining
Contractual
Life

 

Weighted
Average
Exercise
Price

 

Number
Exercisable

 

Weighted
Average
Exercise
Price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$0.36 - $0.38

 

1,060,000

 

5 years

 

$

0.37

 

—

 

$

—

 

$0.36-1.57

 

2,419,000

 

5 years

 

$

1.00

 

785,094

 

$

0.55

 


As of February 29, 2016,December 31, 2018, there was $0.2 million$1,078,843 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 1734 months. The total fair value of shares vested during the fiscal years ended February 29, 2016options was $258,666 and February 28, 2015, was zero for both periods.


NOTE 7  CONTINGENT LIABILITY


On March 25, 2016, the Company’s legal counsel, who had represented the Company in its patent litigation withdrew as legal counsel, after discussions regarding whether they were the most suited to be our representative in this action$150,820 at December 31, 2018 and verbally waived payment on any remaining open invoices which totaled $0.5 million.  The Company does not believe it is liable for these fees nor does it believe that the law firm will take action to collect these fees.  The unpaid legal fees have been reversed.December 31, 2017, respectively.


- 2739 -


NOTE 87  SALE-LEASEBACK TRANSACTION - OPERATING LEASE


On February 25, 1999, the Company entered into a sale-leaseback arrangement whereby the Company sold its land and building at 24 Carpenter Road in Chester, New York and leased it back for a period of twenty years. The leaseback is accounted for as an operating lease. The gain of $0.5 million realized in this transaction has been deferred and is amortized to income in proportion to rental expense over the term of the related lease.


At February 29, 2016, minimum future rental payments are:On November 14, 2017, we executed a lease extension, which calls for six month extensions beginning March 1, 2019 with the option to renew six times at monthly lease amount of $12,088.


Year

 

Minimum Rental Payments

 

 

 

 

 

 

2017

 

 

132,504

 

2018

 

 

132,504

 

2019

 

 

132,504

 

 

 

$

397,512

 


Rent expense for both the yearstwelve months ending December 31, 2018 was $132,504 and ten months ended February 29, 2016, and February 28, 2015 were $132,504.December 31, 2017 was $110,420.


NOTE 98 FEDERAL AND STATE INCOME TAXES


The provision (benefit) for income taxes at December 31, 2018, and December 31, 2017 consisted of at February 29, 2016, and February 28, 2015:of:


 

2016

 

2015

 

 

 

 

 

 

 

December 31,
2018

 

December 31,
2017

 

State income tax:

 

 

 

 

 

 

 

 

 

 

Current, net of refund

 

$

1,867

 

$

1,000

 

 

$

12,391

 

$

1,670

 

Federal income tax:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

(125,496

)

 

102,087

 

 

23,141

 

 

(47,327

)

Current

 

 

483,335

 

 

218,332

 

 

 

230,848

 

 

448,220

 

Total

 

$

359,706

 

$

321,419

 

 

$

266,380

 

$

402,563

 


The reconciliation of income taxes shown in the financial statements and amounts computed by applying the Federal expected tax rate of 21% for fiscal year 2018 and 34% for fiscal year 2017 is as follows:


 

2016

 

2015

 

 

December 31,
2018

 

December 31,
2017

 

 

 

 

 

 

 

 

 

 

 

Income before tax

 

$

1,142,570

 

$

1,074,536

 

 

$

1,176,950

 

$

1,307,520

 

Computed expected tax

 

$

388,474

 

$

365,342

 

 

$

247,160

 

$

444,557

 

State income and franchise tax/(refund)

 

1,232

 

 

660

 

State income and franchise tax

 

 

12,391

 

 

1,670

 

Reduction in deferred tax from change in tax rate

 

 

—

 

 

(13,420

)

Other

 

 

(30,000

)

 

(44,583

)

 

 

6,829

 

 

(30,244

)

Provision for taxes

 

$

359,706

 

$

321,419

 

 

$

266,380

 

$

402,563

 


The components of deferred tax liabilitiesassets/(liabilities) at February 29, 2016,December 31, 2018, and February 28, 2015,December 31, 2017, respectively, are as follows:


 

2016

 

2015

 

 

December 31,
2018

 

December 31,
2017

 

 

 

 

 

 

 

 

 

 

 

Deferred compensation cost

 

$

7,559

 

$

(19,040

)

 

$

79,632

 

$

33,987

 

Depreciation and amortization

 

(173,700

)

 

(239,660

)

 

(79,640

)

 

(69,550

)

Allowance for bad debts and other

 

 

43,030

 

 

10,093

 

 

 

1,474

 

 

13,888

 

Deferred tax liabilities

 

$

(123,111

)

$

(248,607

)

Deferred tax asset/(liabilities)

 

$

1,466

 

$

(21,675

)


New Tax Legislation


On December 22, 2017, the President of the United States (“U.S.”) signed into law the Tax Cuts and Jobs Act tax reform legislation. This legislation makes significant change in U.S tax law including a reduction in the corporate tax rates, changes to net operating loss carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax.  The legislation reduced the highest U.S corporate tax rate from the current rate of 35% to 21%, effective January 1, 2018.  As a result of the enacted law, the Company was required to revalue deferred tax assets and liabilities at the enacted rate.  This revaluation resulted in an additional benefit of $13,420 included in income tax expense and corresponding reduction in the net deferred tax liabilities at December 31, 2107.  The other provisions of the Tax Cuts and Jobs Act did not have a material impact on the 2017 financial statements.


- 2840 -


NOTE 109  MAJOR CUSTOMERS


For the yearstwelve months ended February 29, 2016,December 31, 2018, and February 28, 2015,the ten months ended December 31, 2017, approximately, 55.3%58% and 52.9%56%, respectively, of the Company’s gross product revenues were derived from one major customer.  At February 29, 2016,December 31, 2018 and February 28, 2015,December 31, 2017, accounts receivable due from this customer were $0.5$0.8 million and $1.0$0.9 million, respectively.


The largest customer in both years is a domestic medical products and supplies distributor.  Although a number of larger infusion customers have elected to consolidate their purchases through one or more distributors in recent years, we continue to maintain a strong direct relationshiprelationships with them.  We do not believe that their continued purchasespurchase of FREEDOM60 pumps, tubing, needle setsFREEDOM System products and related supplies is contingent upon the distributor.


NOTE 1110  LEGAL PROCEEDINGS


In 2013,We are involved in several lawsuits with our principal competitor, EMED Technologies Corporation (“EMED”), wherein EMED has alleged that our needle sets infringe various patents controlled by EMED.  Certain of these lawsuits also allege antitrust violations, unfair business practices, and various other claims.  We are vigorously defending against all of the Company commencedlawsuits brought by EMED.  Although no assurances can be given, we believe we have meritorious defenses to all of EMED’s claims.


The initial case involving EMED was filed by us in the United States District Court for the Eastern District of California on September 20, 2013 (the “California case”), in response to a letter from EMED claiming patent infringement by us, and sought a declaratory judgment action against competitor, EMED Technologies Corp. (“EMED”) to establishestablishing the invalidity of one ofthe patent referenced in the letter – EMED’s patents and non-infringement of the Company’s needle sets.US patent 8,500,703 – or “‘703.”  EMED answered the complaint and asserted patent infringement of the ‘703 Patent and several counterclaims relating generally to claims of unfair business practice counterclaims. The Companypractices against us. We responded by asserting its ownadding several claims against EMED, generally relating to claims of unfair business practice claims against EMED.  practices on EMED’s part.  Both parties have requested injunctive relief and monetary damages in unspecified amounts.


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.  The Company is complying with that order.  On March 24, 2016, EMEDAugust 22, 2017, we filed a motion forin this California case seeking a second preliminary injunctionPreliminary Injunction prohibiting EMED from making false statements and claims regarding salesthe products of RMS products in California.both companies.  The Company is opposing that motion has now been fully briefed, and briefing for this motion, as well as case discovery is ongoing.the parties are awaiting action by the Court.


Earlier, on September 11, 2015, we requested an ex parte reexamination of the ‘703 patent by the US Patent and Trademark Office (“USPTO”). The ex parte reexamination resulted in a Final Office Action dated July 19, 2017 rejecting all of EMED’s claims in the patent.  On JuneJanuary 25, 2015,2018 EMED filed an Appeal Brief with a claimPetition for Revival, which was accepted.  On April 9, 2018 the USPTO denied EMED’s request for reconsideration of patent infringement for the order rejecting all claims in the ‘703 patent.


The second of its patents, also directed to the Company’s needle sets,court case was filed by EMED in the United States District Court for the Eastern District of Texas.Texas on June 25, 2015, claiming patent infringement of Claim 1 of another of its patents (US 8,961,476 – “‘476”), by our needle sets, and seeking unspecified monetary damages (“ED Texas ‘476 matter”). This second‘476 patent is related to the one concerning the Company’s declaratory judgment action.  Given the close relationship between the two patents, the Company has requested that the Texas suit be transferred to California.  The Court has not yet ruled on the Company’s transfer request.  Discovery in the Texas suit is ongoing.‘703 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 Companywe requested an inter partes review (IPR)(“IPR”) of the patent‘476, and 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 decisionresponse 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.  Based on the grant of the IPR, the Company intends toour request, the Court stay proceedingsentered an order staying the ED Texas ‘476 matter until after the Patent Trial and Appeal Board (“PTAB”) of the second filed case until conclusionUSPTO made a decision regarding the validity of the IPR.patent.  On January 12, 2017, the PTAB issued its Final Written Decision in our favor invalidating all but one (“dependent Claim 9”) of the claims in the ‘476 patent.   EMED appealed the PTAB’s ruling to the United States Court of Appeals for the Federal Circuit, which affirmed the PTAB’s Final Written Decision in our favor on April 3, 2018.  On April 18, 2018, EMED filed a petition for en banc rehearing, which was denied.  On August 16, 2018, EMED petitioned the United States Supreme Court for a Writ of Certiorari to review the Federal Circuit’s upholding the PTAB’s Final Written Decision.  On October 29, 2018 the United States Supreme Court denied EMED’s Petition for a Writ of Certiorari, thus finally affirming the PTAB’s invalidation of ‘476, save for one dependent claim.


Following the PTAB’s Final Written Decision in the IPR regarding ‘476, EMED filed a new patent application claiming priority back to the application that issued as ‘703, which is the patent at issue in the California case.  Submitted for accelerated examination, this new application issued as US 9,808,576 – “‘576” on November 7, 2017.  On this same date, EMED filed a new case (the “third case”) in the United States District Court for the Eastern District of Texas claiming patent infringement of ‘576, also directed to our needle sets, and seeking unspecified damages and a preliminary injunction against our marketing of its needle sets.  We filed a Motion to Dismiss or Transfer Venue to the United States District Court for the Southern District of New York (“SDNY”), which has resulted in the transfer of the third case to SDNY (“SDNY ‘576 matter”).


The SDNY ‘576 matter is proceeding with preliminary matters and although a fixed trial date has not been set it is expected to be in the fourth quarter of 2019 or the first quarter of 2020.


- 41 -


On April 23, 2018, EMED filed a new civil case (the “fourth case”) against us in the United States District Court for the Eastern District of Texas (the “Texas Court”) asserting antitrust, defamation and unfair business practice claims, and seeking unspecified damages, similar to those previously presented in the California case, described above.  As the result of a hearing on November 14, 2018, on December 7, 2018 the Court entered an order transferring the fourth case to the United States District Court for the Eastern District of California (the “California Court”) to be combined with the California case, or dismissed, as the California Court sees fit.


At the same hearing on November 14, 2018, the Texas Court granted EMED leave to amend its infringement contentions, following the IPR decision invalidating all but one claim of the ‘476 patent, in order to assert infringement of that sole remaining claim, namely dependent Claim 9.  The Texas Court’s order allowing EMED’s amendment of its infringement contentions against us was entered on December 7, 2018.


The ED Texas ‘476 matter is now proceeding under EMED’s amended infringement contention to incorporate the surviving dependent Claim 9, which incorporates Claims 1 and 8 of the ‘476 patent, meaning that, to prove infringement on the part of us, EMED must prove more elements of infringement than it originally charged against us.  The Texas Court has set a trial date of August 19, 2019 for the trial of the ED Texas ‘476 matter.


As is required by the respective Courts in both the SDNY ‘576 matter and the ED Texas ‘476 matter, the parties are engaging in settlement discussions and have scheduled mediation sessions.


Although the Company believeswe believe it has meritorious claims and defenses in these litigationsall of the above-described actions and proceedings, their outcomes cannot be predicted with any certainty. If any of these actions against us are successful, they could have a material adverse effect on our business, results of operations, financial condition and cash flows.


- 29 -NOTE 11  EMPLOYEE BENEFITS


We provide a safe harbor 401(k) plan for our employees that allows for employee elective contributions, Company matching contributions and discretionary profit sharing contributions. Employee elective contributions are funded through voluntary payroll deductions. The Company makes safe harbor matching contributions in an amount equal to 100% of the employee’s contribution not to exceed 3% of employee’s compensation plus 50% of employee’s pay contributed between 3% and 5% of employee’s compensation. Company matching expense for the period ended December 31, 2018 and December 31, 2017 was $121,834 and $64,881, respectively. The Company has not provided for a discretionary profit sharing contribution.


NOTE 12  SUBSEQUENT EVENTS


On February 1, 2019, Mr. Donald B. Pettigrew, the Company’s President and Chief Commercial Officer, was promoted to President and Chief Executive Officer, replacing Mr. Daniel S. Goldberger as interim Chief Executive Officer.  Mr. Goldberger remains our Chairman of the Board and, effective February 1, 2019, was appointed Executive Chairman.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


During the fiscal years ended February 29, 2016 and February 28, 2015, neither the Company nor anyone on its behalf has consulted with McGrail Merkel Quinn & Associates, P.C. with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that McGrail Merkel Quinn & Associates, P.C. concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).None.


ITEM 9A. CONTROLS AND PROCEDURES


EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES


An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer or CEO, and Chief Financial Officer or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act)Act of 1934, as amended (the “Exchange Act”)) as of February 29, 2016.December 31, 2018. Based on that evaluation, our management, including our CEO and CFO, concluded that as of December 31, 2018 our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.


- 42 -


MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING


Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, and implemented in conjunction with management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles.


There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.


Management assessed the effectiveness of the Company’s internal control over financial reporting as of February 29, 2016.December 31, 2018. This assessment was based on criteria for effective internal control over financial reporting described in “Internal Control - Integrated Framework,” issued by the Committee of Sponsoring OrganizationOrganizations of the Treadway Commission (COSO). Based on this assessment, management determined that, as of February 29, 2016,December 31, 2018, the Company maintained effective internal control over financial reporting.


This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Act that permits the Company to provide only management’s report in the annual report.


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING


There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal yearquarter ended February 29, 2016,December 31, 2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B. OTHER INFORMATION


None.On February 28, 2019, the Company filed a corrective amendment to its Restated Certificate of Incorporation, as amended, to accurately reflect the location of the Company’s corporate offices in Chester, NY and include a page that had been inadvertently omitted from the previous filing.  This summary does not purport to be complete and is qualified in its entirety by reference to the full text of the Restated Certificate of Incorporation, as amended, filed as Exhibit 3.1 to this Annual Report on Form 10-K and incorporated herein by reference.


- 30 -


PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE


The following table sets forth-certain information with respectInformation regarding our executive officers required by Item 10 of Part III is set forth in Item 1 of Part I “Business — Executive Officers.” Information required by Item 10 of Part III regarding our directors and any material changes to the Executive Officers and Directors:


Name

Age

Position / Held Since

Andrew I. Sealfon

70

President 1980 through April 2016

Chairman 1989

Director 1980

Chief Executive Officer 1986

Karen Fisher

50

Chief Financial Officer and Treasurer 2015

Cyril Narishkin

51

Interim Chief Operating Officer 2015
Director 2015
President 2016

Paul Mark Baker

65

Director 1991

Mark Pastreich

86

Director 2011

Brad A. Sealfon

28

Director 2013

Arthur J. Radin

79

Director 2015

David Anderson

63

Director 2016


Mr. Andrew Sealfon is deemed a “parent” and “promoter” as those terms are defined under the Securities Act of 1933 as amended.


All directors hold offices until the next annual meeting of stockholders or until their successors are elected.  Executive officers hold office at the discretion of the Board of Directors.


Mr. Andrew Sealfon co-founded Repro Med Systems, Inc. in 1980.  He is an electrical engineer and inventor and has been granted numerous U.S.  patents.  Mr. Sealfon is a graduate of Lafayette College.  On April 26, 2016, Mr. Sealfon was replaced as Presidentprocess by Mr. Cyril Narishkin.  He remains as Chief Executive Officer and head of research and development.


Ms. Fisher has more than 19 years of financial experience at a variety of industries, most recently serving as Assistant Controller, Senior Manager for Armored Autogroup, Inc., a worldwide consumer products company, from February 2012 to January 2015.  Before joining Armored Autogroup, Inc., she spent seven years at Gilman Ciocia, Inc., where she served in a variety of financial roles, including Chief Accounting Officer and Treasurer, and, earlier, as Controller. Before Gilman Ciocia, Inc., she held multiple financial management roles at The New York Times Company and Thomson Financial.  Ms. Fisher is a Certified Public Accountant and a graduate of Arizona State University with a BS in accounting.


Dr. Baker earned a medical degree from Cornell University Medical College. He is a practicing pediatrician and is attending at Department of Pediatrics Horton Memorial Hospital, Middletown, New York, and attending at New York Hospital-Cornell Medical Center in New York City. Dr. Baker assisted us in the development of the RES-Q-VAC® Suction System. In addition, Dr. Baker has published results of use of the RES-Q-VAC in a letter to LANCET, a medical journal.  Dr. Baker is currently consulting with the Company to provide clinical research and support services related to new and enhanced applications for the FREEDOM60 and FreedomEdge.


Mr. Pastreich is a businessman, and a longtime real estate investor and broker. He has served on numerous for-profit and not-for-profit boards. Among his other various real estate holdings, he is presently a partner in Casper Creek LLC, which owns the building leased by the Company.


- 31 -


Mr. Radin was appointedsecurity holders may recommend nominees to the Board of Directors is included in January, 2015.  Mr. Radin, who started his career at Touche Ross & Co., has been a partner in public accounting firms for 45 years.  He wasour Proxy Statement relating to our 2019 Annual Meeting of Shareholders, and is incorporated herein by reference. Information relating to our Code of Ethics and to compliance with Radin, Glass & Co., the Company’s former independent auditors, from 1998 until January 2015 when he joined Janover LLC.  He is a memberSection 16(a) of the New York State Society1934 Act is set forth in our Proxy Statement relating to our 2019 Annual Meeting of Certified Public Accountants Editorial Board.  Mr. Radin received a BA degree from Columbia CollegeShareholders and a Masters in Business Administration from New York University.


Mr. Brad Sealfon joined the board in November, 2013.  Mr. Sealfon is the sonincorporated herein by reference. We intend to disclose amendments to our Code of Mr. Andrew Sealfon, the Company’s President and Chief Executive Officer.  He was previously the Marketing Director at Company.


Mr. Narishkin was appointed to the Board of Directors and interim Chief Operating Officer on October 21, 2015.  On April 26, 2016, Mr. Narishkin became President of the Company.  Mr. Narishkin has held various executive positions in medical device, defense and automotive manufacturing firms.  He started his career at Texas Instruments’ Materials and Controls Group. After turning around the performance of Texas Instruments, Mexico as Operations Manager, Mr. Narishkin left Texas Instruments to start his own consulting firm helping clients reduce costs, improve performance and quality.  He then became an executive at Essex Industries holding various positions in their defense and medical business divisions improving profitability and sales.  As President of Piper Metal Forming, Mr. Narishkin led the turn-around of this failing business resulting in its sale to a strategic buyer.  Mr. Narishkin has served on several non-profit boards and has been an Adjunct Professor at St. Louis University and Washington University’s MBA programs.  Mr. Narishkin holds a Bachelor of Science degree in Mechanical Engineering from Tufts University, Medford, MA and a Masters in Business Administration from Olin Business School, Washington University in St. Louis.


Mr. Anderson was appointed to the Board of Directors on February 26, 2016.  Mr. Anderson has been in the medical (device) industry for over 23 years and has held the role of Chief Executive Officer for Sterilox Technologies, Inc., Gentis, Inc. and currently with ORTEQ Ltd/CellCoTec Ltd.  He has also served on the board for ACell Inc., (Regenerative Medicine for Woundcare) and Aperion Biologics, (ACL Replacement Technology),Ethics, as well as served on several advisory committees.  Mr. Anderson received a B.S. in Chemical Engineering from Cornell University and attended University of Minnesota for Graduate Studies in Microbiology.


On October 21, 2015, the Board of Directorswaivers of the Company approved director compensation of $25,000 each annually, to be paid quarterly half in cash and half in common stock, effective September 1, 2015.  Directors include Dr. Mark Baker, Mr. Mark Pastreich, Mr. Arthur Radin and Mr. Cyril Narishkin.  For purposes of director compensation, Mr. Narishkin will receive $25,000 annually in addition to his paymentsprovisions thereof, on our website under his consulting agreement.  As of February 29, 2016, each director was paid $12,500 of which half was paid in cash and half in common stock of which each director received 14,566 in common shares.  Beginning March 1, 2016, all Directors, excluding Mr. Andrew Sealfon, the Company’s Chief Executive Officer, will receive director compensation.heading “Governance” at rmsmedicalproducts.com.


ITEM 11. EXECUTIVE COMPENSATION


Andrew I. Sealfon, Chief Executive Officer, received $450,000Information required by Item 11 of Part III is included in salaryour Proxy Statement relating to our 2019 Annual Meeting of Shareholders and bonus during the fiscal year ended February 29, 2016.


Karen Fisher, Chief Financial Officer and Treasurer, received $200,291 in salary and bonus during the fiscal year ended February 29, 2016.  Ms. Fisher received a stock option grant of 500,000 shares in Fiscal 2016 which vest over twelve months.


Officers are reimbursed for travel and other expenses incurred on behalf of the Company. We offer an optional 401(k) savings plan with a company matching component to all full-time employees with 90 days of service.


 

 

Summary Compensation Table

 

Name & Position

 

Year

 

Salary/
Compensation

 

 

 

 

 

 

 

Andrew I. Sealfon, CEO (1)

 

2016

 

$

450,000

 

 

 

2015

 

$

408,333

 

 

 

 

 

 

 

 

Cyril Narishkin, President and Interim COO (2)

 

2016

 

$

80,000

 

 

 

2015

 

$

—

 

 

 

 

 

 

 

 

Karen Fisher, CFO and Treasurer (effective January 28, 2015) (3)

 

2016

 

$

200,291

 

 

 

2015

 

$

30,417

 


- 32 -


(1) Mr. Sealfon is provided with an automobile that has been paid for in fullincorporated herein by the Company.reference.


(2) Mr. Narishkin was paid for travel and other expenses in the amount of $19,090.  As of October 21, 2015 his compensation was paid half in cash and half in common stock and as of January 1, 2016 his compensation was paid seventy-five percent in cash and twenty-five percent in common stock.  Mr. Narishkin is compensated at $16,000 per month.


(3) Ms. Fisher has an employment agreement with the Company which was entered into on January 15, 2015.  Ms. Fisher’s annual salary is $185,000, plus bonus.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


The following table sets forth, asInformation required by Item 12 of April 30, 2016, the numberPart III is included in our Proxy Statement relating to our 2019 Annual Meeting of shares of Common Stock beneficially ownedShareholders and is incorporated herein by each person owning more than 5% of the outstanding shares, by each officer and director, and by all officers and directors as a group:


Name of Principal Stockholders and Identity of Group

 

Number of Shares Owned

 

Percent of Class

 

Notes:

 

 

 

 

 

 

 

 

 

 

Andrew I. Sealfon*

 

 

8,127,250

 

 

21

%

 

(1)

 

Dr. Paul Mark Baker

 

 

1,815,746

 

 

5

%

 

(2)

 

Mark Pastreich

 

 

391,066

 

 

1

%

 

—

 

Arthur J. Radin

 

 

115,166

 

 

—

 

 

—

 

Brad A. Sealfon

 

 

85,000

 

 

—

 

 

—

 

Cyril Narishkin

 

 

96,542

 

 

—

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

All Directors and Officers as a Group

 

 

10,630,770

 

 

27

%

 

—

 

 

 

 

 

 

 

 

 

 

 

 

Horton Capital Partners Fund, LP

 

 

4,702,247

 

 

12

%

 

(3)

 

 

 

 

 

 

 

 

 

 

 

 

Total of all Directors, Offices and 5% stockholders

 

 

15,333,017

 

 

39

%

 

—

 


* Andrew I. Sealfon is deemed a “parent” and a “promoter” of Repro Med Systems, Inc., as those terms are defined under the Securities Act of 1933, as amended.


(1) Does not include approximately 115,000 shares of common stock owned by Mr. Andrew Sealfon’s wife, 85,000 shares of common stock held by Mr. Sealfon’s son, Brad A. Sealfon, or 85,000 shares of common stock held by Mr. Sealfon’s daughter, Carolyn Sealfon, as to which Mr. Sealfon disclaims beneficial ownership.


(2) Includes beneficial shares owned by Andrea Baker, Dr. Baker’s wife.


(3) As part of its investment in the Company in August, 2014, Horton Capital Partners Fund, LP, was issued warrants to purchase up to 1.0 million shares additional shares of common stock at an exercise price of $0.45 per share.  The warrants expire in August, 2019.


Certain shares and/or options, which have been disclosed above, were issued to officers, directors, or 10% shareholders. The Company has reminded each of said directors to file an SEC Form 3, 4, or 5 as applicable, with respect to such stock issuances, option grants and other stock transactions.reference.


- 3343 -


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE


To reduce corporate travel expenses, we maintainInformation required by Item 13 of Part III is included in our Proxy Statement relating to our 2019 Annual Meeting of Shareholders and operate a corporate aircraft. Since 1992, the aircraft has been leased from AMI Aviation, Inc. Mr. Andrew Sealfon is a majority shareholder in AMI Aviation. The lease expenses paid were $21,500 in each of the Fiscal Years 2016 and 2015. We believe the AMI lease is on terms competitive with those that could be obtained from unaffiliated third parties.


In February 2011, the Company added Mr. Mark Pastreich as a director. Mr. Pastreich is a principal in the company that owns the building leasedincorporated herein by the Company. The Company is in year seventeen of a twenty-year lease. No changes have been made to the lease terms as a result of his directorship, and none are anticipated before the end of the lease.reference.


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 $28,000 for the year ended February 29, 2016.  In August, 2014, Dr. Baker was paid a previously approved bonus of $25,000 to assist him in covering taxes due on the grant of common stock.


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


On April 26, 2016, Cyril Narishkin was appointed President of the Company.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES


The followingInformation required by Item 14 of Part III is a summary of the fees billed to us by McGrail Merkel Quinn & Associates, P.C., an independent registered public accounting firm, for professional services rendered for the fiscal years ended February 29, 2016 and February 28, 2015, respectively.


Fee Category

 

Fiscal 2016 Fees

 

Fiscal 2015 Fees

 

 

 

 

 

Audit Fees

 

$39,000

 

$39,000


Audit fees consist of aggregate fees billed for professional services rendered for the audit of our annual financial statements and review of the interim financial statements included in quarterly reports or services that are normally providedour Proxy Statement relating to our 2019 Annual Meeting of Shareholders and is incorporated herein by the independent auditors in connection with statutory and regulatory filings or engagements for the fiscal years ended February 29, 2016, and February 28, 2015, respectively.reference.


The Board of Directors is responsible for the appointment, compensation, and oversight of the work of the independent auditors and approves in advance any services to be performed by the independent auditors, whether audit-related or not. The Board of Directors reviews each proposed engagement to determine whether the provision of services is compatible with maintaining the independence of the independent auditors. All of the fees shown above were pre-approved by the Board of Directors.


- 34 -


PART IV


ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


The Financial Statement SchedulesAll financial statement schedules have been omitted because they are filednot required, not applicable, not present in Part II, Item 8 hereof.amounts sufficient to require submission of the schedule, or the required information is otherwise included.


The following exhibits are filed herewith or incorporated by reference as part of this Annual Report.


Exhibit No.

 

Description

 

 

 

3(i)

 

ArticlesRestated Certificate of Incorporation, dated March 7, 1980; as amended September 18, 1980; October 12, 1982; November 11, 1986 and November 17, 1987 (previously filed with the Form 10-Q for the quarter ended November 30, 2013, and incorporated by reference) (filed herewith).

 

 

 

3(ii)

 

Amended and Restated By-Laws dated December 5, 2018 (incorporated by reference fromto the Annual ReportCompany’s Form 8-K filed with the SEC on Form10-K of REPRO MED SYSTEMS, INC., for the fiscal year ended February 1987 (previously filed and incorporated by reference)December 7, 2018).

 

 

 

4.1

 

Securities Purchase Agreement with Horton Capital Partners Fund, L.P. dated August 8, 2014 (previously filed with Form 10-K for the fiscal year ended February 28, 2015 and incorporated by reference).

 

 

 

10.1

 

Executive Employment Agreement for Karen Fisher, Chief Financial Officer datedmade as of January 15, 2015 (incorporated by reference to the Company’s Form 10-Q filed with the SEC on October 7, 2016).

10.2

General Release and Confidentiality Agreement with Fred Ma, Ph.D. dated as of December 20, 2018 (incorporated by reference to the Company’s Form 8-K filed with the SEC on December 26, 2018).

10.3

Executive Employment Agreement for Eric Bauer, Chief Operating Officer dated January 17, 2017, (previously filed with Form 10-K for the fiscal year ended February 28, 2017 and incorporated by reference).

 

 

 

14.110.4

 

AcknowledgementSeparation Agreement and General Release for Eric Bauer, Chief Operating Officer made effective as of Receipt and Understanding of Code of Ethics for Officers, Directors, and Employees of REPRO MED SYSTEMS, INC., and Federal Securities Law Prohibitions asDecember 19, 2017 (incorporated by reference to use of Insider Information (previouslythe Company’s Form 10-KT filed and incorporated by reference)with the SEC on March 5, 2018).

 

 

 

14.210.5

 

CodeCommon Stock Purchase Agreement dated as of Ethics for Officers, Directors,December 17, 2018 by and Employees of REPRO MED SYSTEMS, INC. (previouslyamong Repro Med Systems, Inc., the Sellers named therein and the Purchasers named therein (incorporated by reference to the Company’s Form 8-K filed and incorporated by reference)with the SEC on December 17, 2018).

 

 

 

14.310.6

 

Federal Securities Law Considerations for ManagementAgreement Regarding Stock Sale dated as of REPRO MED SYSTEMS, INC. (previouslyDecember 17, 2018 by and between Repro Med Systems, Inc. and Andrew Sealfon (incorporated by reference to the Company’s Form 8-K filed with the SEC on December 17, 2018).

10.7

Agreement Regarding Stock Sale dated as of December 17, 2018 by and incorporatedbetween Repro Med Systems, Inc. and Dr. Paul Mark Baker (incorporated by reference)reference to the Company’s Form 8-K filed with the SEC on December 17, 2018).

10.8

Form of Conditional Severance Agreement dated November 8, 2018 (incorporated by reference to the Company’s Form 10-Q filed with the SEC on November 9, 2018).


- 44 -


Exhibit No.

Description

10.9

Employment Agreement made as of October 12, 2018 between Repro Med Systems, Inc. and Daniel S. Goldberger (incorporated by reference to the Company’s Form 8-K filed with the SEC on October 16, 2018).

10.10

Non-Qualified Stock Option Award dated as of October 12, 2018 between Repro Med Systems, Inc. and Daniel S. Goldberger (incorporated by reference to the Company’s Form 8-K filed with the SEC on October 16, 2018).

10.11

Employment Agreement made as of September 4, 2018 between Repro Med Systems, Inc. and Donald B. Pettigrew (incorporated by reference to the Company’s Form 8-K filed with the SEC on September 4, 2018).

10.12

2015 Stock Option Plan, as amended (incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the SEC on July 28, 2016).

10.13

Employment Agreement made as of October 10, 2017 between Repro Med Systems, Inc. and Manuel Marques (filed herewith).

 

 

 

31.1

 

Certification of the Principal Executive Officer of registrant required under Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

 

 

31.2

 

Certification of the Principal Financial Officer of registrant required under Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

 

 

32.1

 

Certification of the Principal Executive Officer of registrant required under Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

 

 

32.2

 

Certification of the Principal  Financial Officer of registrant required under Section 906 of the Sarbanes-Oxley Act of 202,2002, filed herewith.

 

 

 

101

 

Interactive Data File (Annual Report on Form 10-K, for the fiscal year ended February 29, 2016)December 31, 2018), furnished in XBRL (eXtensible Business Reporting Language).


ITEM 16. FORM 10-K SUMMARY


None.


- 3545 -


SIGNATURES


Pursuant to the requirements of Section 13 or 15 (d)15(d) 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 on May 13, 2016.March 5, 2019.


REPRO MED SYSTEMS, INC.


/s/ Andrew I. SealfonDonald B. Pettigrew

Andrew I. Sealfon,Donald B. Pettigrew, President and Chief Executive Officer


/s/ Karen Fisher

Karen Fisher, Chief Financial Officer and Treasurer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on May 13, 2016.March 5, 2019.


/s/ Andrew I. SealfonDaniel S. Goldberger

Andrew I. Sealfon,Daniel S. Goldberger, Chairman of the Board Director, and Chief Executive Officer


/s/ Cyril NarishkinRobert T. Allen

Cyril Narishkin, President, Interim Chief Operating Officer, andRobert T. Allen, Director


/s/ Dr. Paul Mark BakerDavid Anderson

Dr. Paul Mark Baker,David Anderson, Director


/s/ James M. Beck

James M. Beck, Director


/s/ Joseph M. Manko, Jr.

Joseph M. Manko, Jr., Director


/s/ Mark Pastreich

Mark Pastreich, Director


/s/ Arthur J. Radin

Arthur J. Radin, Director


/s/ Brad A. Sealfon

Brad A. Sealfon, Director


/s/ David Anderson

David Anderson, Director


- 3646 -