result in a change in practice because the guidance that is being superseded was never effective. The amendment in this ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company has assessed the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption and has determined it will not have a material effect.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The main difference between the current requirement under GAAP and this ASU is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. This ASU requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. This is effective for annual and interim periods beginning after December 15, 2018 and early adoption is permitted. This ASU must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. We are currently assessing the potential impact of this ASU on our financial statements, disclosure requirements and methods of adoption.
In July 2015, the FASB issued ASU No. 2015-11—Simplifying the Measurement of Inventory. The ASU was issued as part of the FASB’s simplification initiative, and under the ASU inventory is measured at the lower of cost and net realizable value, which would eliminate the other two options that currently exist for the market: (1) replacement cost and (2) net realizable value less an approximately normal profit margin. This ASU is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted and should be applied prospectively. The Company does not expect the adoption of the ASU to have any impact on its financial statements.
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.
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 28, 2017, the Company does not believe that any of its assets are impaired.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
| | | | | | | | | | |
| | February 28, 2017 | | February 29, 2016 | | Estimated Useful Lives | |
| | | | | | | | | | |
Land | | $ | 54,030 | | $ | 54,030 | | | | |
Building | | | 171,094 | | | 171,094 | | | 20 years | |
Furniture, office equipment, and leasehold improvements | | | 1,022,942 | | | 923,394 | | | 3-10 years | |
Manufacturing equipment and tooling | | | 1,003,166 | | | 961,486 | | | 3-12 years | |
| | | 2,251,232 | | | 2,110,004 | | | | |
| | | | | | | | | | |
Less: accumulated depreciation | | | 1,319,140 | | | 1,113,182 | | | | |
Property and equipment, net | | $ | 932,092 | | $ | 996,822 | | | | |
Depreciation expense was $267,854 and $258,738 for the years ended February 28, 2017, and February 29, 2016, respectively.
NOTE 4 RELATED PARTY TRANSACTIONS
On December 20, 2013, we executed an agreement effective March 1, 2014, with a Company director, Dr. Paul Mark Baker, to provide clinical research and support services related to new and enhanced applications for the FREEDOM System. Authorized by the Board of Directors, the agreement provided 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 each of the fiscal years ended February 28, 2017 and February 29, 2016, and the agreement is fully amortized.
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 provided for payment of $16,000 per month for eight days per month, of which half was to be paid in cash and half was to be paid in shares of common stock. Effective January 1, 2016, the agreement provided for the same payment of $16,000 per month, of which seventy-five percent was to be paid in cash and twenty-five percent was to be paid in shares of common stock.
On June 24, 2016, Cyril Narishkin executed a termination and general release agreement, which terminated his previous consulting agreement, and resigned as an officer and director for personal reasons. Mr. Narishkin was compensated for services as a consultant through January 31, 2017 at a monthly rate of $16,000 per month for up to eight days of service a month upon request of the Company. Mr. Narishkin’s compensation was $230,000 for the year ended February 28, 2017. In accordance with the agreement, the Company repurchased 96,542 shares of common stock of the Company owned by Mr. Narishkin at an aggregate purchase price of $43,393.
In December 2016 and January 2017, Brad Sealfon, the son of Andrew Sealfon, the Company’s President and Chief Executive Officer, consulted for the Company in its production and quality departments and was compensated $7,744.
LEASED AIRCRAFT
The Company leases an aircraft from a company controlled by Andrew Sealfon, the Company’s President and Chief Executive Officer. The lease payments were $21,500 for each of the years ended February 28, 2017, and February 29, 2016. The original lease agreement has expired and the Company is currently on a month-to-month basis for rental payments.
BUILDING LEASE
Mr. Mark Pastreich, a director, is a principal in the entity that owns the building leased by Company. The Company is in year eighteen of a twenty-year lease. There have been no changes to lease terms since his directorship and none are expected through the life of the current lease. With a monthly lease amount of $11,042, the lease payments were $132,504 for each of the years ended February 28, 2017, and February 29, 2016. The Company also paid property taxes for the years ended February 28, 2017 and February 29, 2016 in the amount of $48,455 and $47,954, respectively.
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NOTE 5 STOCKHOLDERS’ EQUITY
On September 30, 2015, RMS’s Board of Directors authorized a stock repurchase program pursuant to which the Company has and expects to continue to make open market purchases of the Company’s outstanding common stock. The Board of Directors initially authorized such purchases up to 1,000,000 shares. On June 29, 2016, the Board of Directors approved the amendment to the stock repurchase program increasing the authorized to be repurchased to 2,000,000 shares. The purchases are made through a broker designated by the Company with price, timing and volume restrictions based on average daily trading volume, consistent with the safe harbor rules of the Securities and Exchange Commission (the “Commission”) for such repurchases.
As of February 28, 2017, the Company had repurchased 396,606 shares at an average price of $0.45 under the program.
NOTE 6 STOCK-BASED COMPENSATION
On September 30, 2015, the Board of Directors approved the 2015 Stock Option Plan (“the Plan”) authorizing the Company to grant stock option awards to certain officers, employees and consultants under the Plan, subject to shareholder approval at the Annual Meeting of Shareholders held on September 6, 2016. The total number of shares of common stock of the Company, par value $0.01 per share (“Common Stock”), with respect to which awards may be granted pursuant to the Plan was not to exceed 2,000,000 shares.
On June 29, 2016, the Board of Directors approved the amendment to the Plan authorizing the total number of shares of common stock authorized to be subject to awards granted under the Plan to be increased to 4,000,000 shares. On September 6, 2016, at the Annual Shareholder Meeting, the Company’s shareholders approved the Plan as amended.
As of February 28, 2017, the Company had awarded 1,345,000 options to certain executives and key employees under the Plan.
Effective November 1, 2016, the Company entered into an employment agreement with Dr. Ma, the Company’s Chief Medical Officer. The agreement calls for quarterly equity compensation in the form of shares of common stock of the Company. The stock will be awarded on the day following the last working day of each quarter. The number of shares issued each quarter shall be determined by dividing $15,000 by the closing bid price of the Company’s common stock as reported by the OTC Markets Inc. as of the last working day of such quarter (the “Closing Price”). As of February 28, 2017, 10,870 shares of common stock were issued to Dr. Ma.
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, beginning September 1, 2015.
The per share weighted average fair value of stock options granted during the fiscal year ended February 28, 2017 and February 29, 2016 was $0.21 and $0.19, respectively. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the fiscal year ended February 28, 2017 and February 29, 2016. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued:
| | | | | | | |
| | February 28, 2017 | | February 29, 2016 | |
| | | | | | | |
Dividend yield | | | 0.00% | | | 0.00% | |
Expected Volatility | | | 59.00-70.90% | | | 59.00% | |
Weighted-average volatility | | | — | | | — | |
Expected dividends | | | — | | | — | |
Expected term (in years) | | | 5 Years | | | 5 Years | |
Risk-free rate | | | 2.17-2.48% | | | 2.17% | |
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The following table summarizes the status of the Company’s stock option plan:
| | | | | | | | | | | | | |
| | February 28, 2017 | | February 29, 2016 | |
| | Shares | | Weighted
Average
Exercise
Price | | Shares | | Weighted
Average
Exercise
Price | |
| | | | | | | | | |
Outstanding at March 1 | | | 1,060,000 | | $ | 0.37 | | | — | | $ | — | |
Granted | | | 500,000 | | $ | 0.41 | | | 1,155,000 | | $ | 0.37 | |
Exercised | | | — | | $ | — | | | — | | $ | — | |
Forfeited | | | 215,000 | | $ | 0.36 | | | 95,000 | | $ | 0.36 | |
Outstanding at February | | | 1,345,000 | | $ | 0.39 | | | 1,060,000 | | $ | 0.37 | |
Options exercisable at February | | | — | | $ | — | | | — | | $ | — | |
Weighted average fair value of options granted during the period | | | — | | $ | — | | | — | | $ | — | |
Stock-based compensation expense | | | — | | $ | 115,828 | | | — | | $ | 50,413 | |
Total stock-based compensation expense for stock option awards totaled $115,828 and $50,413 for the fiscal year ended February 28, 2017 and February 29, 2016, respectively.
The weighted-average grant-date fair value of options granted during fiscal years ended February 28, 2017 and February 29, 2016 was $122,656 and $219,116 respectively. The total intrinsic value of options exercised during fiscal years ended February 28, 2017 and February 29, 2016, was zero for both periods.
The following table presents information pertaining to options outstanding at February 28, 2017:
| | | | | | | | | | | | | |
Range of Exercise Price | | Number
Outstanding | | Weighted
Average
Remaining
Contractual
Life | | Weighted
Average
Exercise
Price | | Number
Exercisable | | Weighted
Average
Exercise
Price | |
| | | | | | | | | | | | | |
$0.36 - $0.41 | | 1,345,000 | | 5 years | | $ | 0.39 | | 500,000 | | $ | 0.38 | |
As of February 28, 2017, there was $0.1 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 17 months. The total fair value of vested options during the fiscal years ended February 28, 2017 and February 29, 2016, was $98,432 and zero, respectively.
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 and verbally waived payment on any remaining open invoices which totaled $0.5 million. The Company does not believe it is responsible 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.
NOTE 8 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.
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At February 28, 2017, minimum future rental payments are:
| | | | |
Year | | Minimum Rental Payments | |
| | | | |
2018 | | | 132,504 | |
2019 | | | 132,504 | |
| | $ | 265,008 | |
Rent expense for both the years ended February 28, 2017, and February 29, 2016 were $132,504.
NOTE 9 FEDERAL AND STATE INCOME TAXES
The (benefit) provision for income taxes at February 28, 2017, and February 29, 2016 consisted of:
| | | | | | | |
| | 2017 | | 2016 | |
| | | | | |
State income tax: | | | | | |
Current, net of refund | | $ | 2,004 | | $ | 1,867 | |
Federal (benefit) income tax: | | | | | | | |
Deferred | | | (40,689 | ) | | (125,496 | ) |
Current | | | (203,015 | ) | | 483,335 | |
Total | | $ | (241,700 | ) | $ | 359,706 | |
The reconciliation of income taxes shown in the financial statements and amounts computed by applying the Federal expected tax rate of 34% is as follows:
| | | | | | | |
| | 2017 | | 2016 | |
| | | | | |
(Loss) income before tax | | $ | (776,699 | ) | $ | 1,142,570 | |
Computed expected (benefit) tax | | $ | (264,078 | ) | $ | 388,474 | |
State income and franchise tax/(refund) | | | 1,323 | | | 1,232 | |
Other | | | 21,055 | | | (30,000 | ) |
(Benefit) provision for taxes | | $ | (241,700 | ) | $ | 359,706 | |
The components of deferred tax liabilities at February 28, 2017, and February 29, 2016, respectively, are as follows:
| | | | | | | |
| | 2017 | | 2016 | |
| | | | | |
Deferred compensation cost | | $ | 49,228 | | $ | 7,559 | |
Depreciation and amortization | | | (156,596 | ) | | (173,700 | ) |
Allowance for bad debts and other | | | 24,946 | | | 43,030 | |
Deferred tax liabilities | | $ | (82,422 | ) | $ | (123,111 | ) |
NOTE 10 MAJOR CUSTOMERS
For the years ended February 28, 2017, and February 29, 2016, approximately, 56.1% and 55.3%, respectively, of the Company’s gross product revenues were derived from one major customer. At February 28, 2017, and February 29, 2016, accounts receivable due from this customer were $0.4 million and $0.5 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 relationship with them. We do not believe that their continued purchase of FREEDOM System products and related supplies is contingent upon the distributor.
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NOTE 11 LEGAL PROCEEDINGS
Lawyers representing EMED Technologies Corp. (“EMED”) sent RMS a letter dated, May 1, 2013, which alleged that the RMS High-Flo Butterfly design infringed a patent controlled by EMED. RMS disputed this claim and we believed that our design did not infringe and that the EMED patent itself was not valid. Under advice of counsel, on September 20, 2013, the Company commenced in the United States District Court for the Eastern District of California a declaratory judgment action against competitor, EMED to establish the invalidity of one of EMED’s patents and non-infringement of the Company’s needle sets. EMED answered the complaint and asserted patent infringement and unfair business practice counterclaims. The Company responded by asserting its own unfair business practice claims against EMED. Both parties have requested injunctive relief and monetary damages. Discovery is ongoing.
On June 16, 2015, the Court issued what it termed a “narrow” preliminary injunction against the Company from making certain statements regarding some of EMED’s products. On June 23, 2016, EMED filed a motion seeking to have the Company held in contempt, claiming that certain language in the Company’s device labeling does not comply with the injunction. In response to a show cause order, the Company advised the Court that the language in the Company’s labeling that EMED challenged is language that the FDA directed the Company to use in its labeling. The Court discharged the show cause order, effectively rejecting EMED’s contempt argument.
On March 24, 2016, EMED filed a motion seeking a second preliminary injunction prohibiting RMS from selling three of its products in California. The Company opposed that motion on April 19, 2016. A decision on the motion is still pending.
On June 25, 2015, EMED filed a claim of patent infringement for the second of its patents, also directed to the Company’s needle sets, in the United States District Court for the Eastern District of Texas. This second patent is related to the one concerning the Company’s declaratory judgment action. Given the close relationship between the two patents, the Company requested that the Texas suit be transferred to California. Also, based on a validity review of the patent in the U.S. Patent and Trademark Office (“USPTO”), discussed below, the Company requested the Texas suit be stayed. On May 12, 2016, the Court entered an order staying the case until after the Patent Trial and Appeal Board (“PTAB”) at the USPTO issued a final written decision regarding the validity of the patent. On January 12, 2017, the PTAB issued its final written decision invalidating the claims asserted by EMED in the Texas litigation. On January 26, 2017, the Company and EMED requested that the Texas case remain stayed pending EMED’s appeal of the PTAB’s final ruling to the Court of Appeals for the Federal Circuit (“CAFC”).
On September 11, 2015, the Company requested an ex parte reexamination of the patent in the first filed case, and on September 17, 2015 the Company requested an inter partes review (“IPR”) of the patent in the second filed case. On November 20, 2015, the USPTO instituted the ex parte reexamination request having found a substantial new question of patentability concerning EMED’s patent in the first filed case. All EMED claims have been rejected by the USPTO Examiner in a Non-Final Office Action. EMED filed a response that is awaiting consideration by the Examiner. Thus, the ex parte reexamination is ongoing. A decision to institute the IPR for EMED’s patent in the second filed case was ordered by the USPTO on February 19, 2016 having determined a reasonable likelihood all claims of the patent may be found to be unpatentable. Oral argument for the IPR was held on November 22, 2016 and a final ruling issued on January 12, 2017. In its final ruling, the PTAB held the claim asserted by EMED against the Company in the second filed case was invalid. EMED appealed the PTAB’s final ruling, and EMED’s opening brief in the CAFC is due by May 12, 2017.
Although the Company believes it has meritorious claims and defenses in these actions and proceedings, their outcomes cannot be predicted with any certainty. We believe that it is very likely both patents will be determined invalid, however, if any of these actions against the Company are successful, they could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.
NOTE 12 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 fiscal 2017 and fiscal 2016 was $54,042 and $39,387, respectively. The Company has not provided for a discretionary profit sharing contribution.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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 of 1934, as amended (the “Exchange Act”)) as of February 28, 2017. Based on that evaluation, our management, including our CEO and CFO, concluded that as of February 28, 2017 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.
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 28, 2017. 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 Organizations of the Treadway Commission (COSO). Based on this assessment, management determined that, as of February 28, 2017, the Company maintained effective internal control over financial reporting.
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 quarter ended February 28, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The following table sets forth certain information with respect to our executive officers and directors as of May 5, 2017:
| | | | |
Name | | Age | | Position / Held Since |
| | | | |
Andrew I. Sealfon | | 71 | | President 1980 |
| | | | Chairman 1989 |
| | | | Director 1980 |
| | | | Chief Executive Officer 1986 |
| | | | |
Karen Fisher | | 51 | | Chief Financial Officer and Treasurer 2015 |
| | | | |
Eric Bauer | | 60 | | Chief Operating Officer 2017 |
| | | | |
Dr. Fred Ma | | 57 | | Chief Medical Officer 2016 |
| | | | |
Paul M. Baker | | 66 | | Director 1991 |
| | | | |
Mark L. Pastreich | | 87 | | Director 2011 |
| | | | |
Brad A. Sealfon | | 29 | | Director 2013 |
| | | | |
Arthur J. Radin | | 80 | | Director 2015 |
| | | | |
David W. Anderson | | 64 | | Director 2016 |
| | | | |
Joseph M. Manko, Jr. | | 51 | | 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 and has been its President, Chief Executive Officer and head of research and development since that time, except from October 2015 through June 2016, when Mr. Narishkin was Interim Chief Operating Officer. He is an electrical engineer and inventor and has been granted numerous U.S. patents. Mr. Sealfon is a graduate of Lafayette College.
Ms. Fisher has more than 20 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.
Mr. Bauer has more than 25 years of executive management experience in a variety of manufacturing and FDA regulated industries. Prior to joining RMS Medical Products, Mr. Bauer was Chief Executive Officer of 2020Value, LLC, a consulting and coaching business, from 2015 to 2017. From 2011 to 2015, Mr. Bauer served in the role of Chief Executive Officer for KAKO Beauty Products, a developer of prestige skin care goods, together with designing, packaging, marketing and implementation of a channel distribution strategy. From 2008 to 2011, Mr. Bauer was Chief Executive Officer of Chemaid Laboratories, a Private Equity-owned contract manufacturing company providing high quality skin care, haircare, fragrance and bath products to the prestige cosmetics industry. Mr. Bauer is a graduate of the State University of Buffalo with a BS in Industrial Engineering and has an MBA in Finance and Economics from the University of Rochester. Mr. Bauer also attended executive education classes at Columbia University, Massachusetts Institute of Technology and Duke University.
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Dr. Ma has over 30 years of broad experience based on his neurosurgical practice, with significant emphasis in pharmaceuticals and medical device industries. Prior to joining RMS Medical Products, Dr. Ma was President and Managing Director of Medical Quality International, LLC, a pharmaceutical and medical device development consulting firm, from July 2014 to January 2016. From June 2011 to July 2014, Dr. Ma was the Chief Medical Officer and Board of Director at Innovacyn, Inc. a pharmaceutical company. Dr. Ma has a successful track record in all phases of product research and development culminating in final approvals, clearances, and commercialization. He is prominent within regulatory agencies and a multitude of professional organizations. Dr. Ma has directly designed and supervised numerous product developments, 600 clinical trials, and has obtained many regulatory approvals and clearances in the United States and worldwide. Dr. Ma earned his M.D. degree from Capital University of Medical Sciences, Beijing, D.M.Sc. (Doctorate of Medical Sciences (equivalent to combined M.D. and Ph.D. degrees)) from University of Tokyo, Japan, and a Ph.D. from Rutgers University.
Dr. Baker earned a medical degree from Cornell University Medical College. Dr. Baker has been a practicing pediatrician for over 38 years, has been on Medical Staff at Orange Regional Medical Center, Middletown, New York for 38 years and has been attending at Weill Cornell Medicine Voluntary Faculty in New York City for 37 years. 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 for the past 60 years. He has served on numerous for-profit and not-for-profit boards. Among his other various real estate holdings, he has been a partner in Casper Creek LLC for past 18 years, which owns the building leased by the Company. Mr. Pastreich has a wealth of business acumen and experience.
Mr. Radin was appointed to the Board of Directors 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 was a Partner with Radin, Glass & Co., the Company’s former independent auditors, from 1998 until January 2015 when he joined Janover LLC. As of January 2017, he is a retired Partner and consultant at Janover LLC, a certified public accounting firm. He is a member of the New York State Society of Certified Public Accountants Editorial Board. Mr. Radin received a BA degree from Columbia College and a Master’s in Business Administration from New York University.
Mr. Brad Sealfon joined the Board of Directors in November, 2013. Mr. Sealfon is the son of Mr. Andrew Sealfon, the Company’s Chairman, President and Chief Executive Officer. From 2011 through December 2015, Mr. Sealfon was employed at the Company in a variety of roles, most recently as the Marketing Director. Mr. Sealfon continues to consult with the Company on various projects. Mr. Sealfon is the founder of Stokequest, a traveling and consulting group for fellow adventurers and outdoor enthusiasts. Mr. Sealfon was also Head of Partnerships for the app WeShelter with a mission to end street homelessness. Mr. Sealfon also served on the Board of Directors for the Interactive Museum in Orange County, NY.
Mr. Anderson was appointed to the Board of Directors in February, 2016. Mr. Anderson has been in the medical (device) industry for over 23 years and is currently the Chief Executive Officer for ORTEQ Ltd/CellCoTec Ltd. Previously, he held the role of Chief Executive Officer for Gentis, Inc. from 2004 through 2014. He has also served on the board for ACell Inc., (Regenerative Medicine for Woundcare) and Aperion Biologics, (ACL Replacement Technology), 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.
Mr. Manko was appointed to the Board of Directors on May 13, 2016. Mr. Manko has been the Senior Principal in Horton Capital Management LLC, the investment manager for the Horton Capital Partners Fund, LP (“Horton Fund”) since 2013. The Horton Fund is a significant shareholder in the Company. Mr. Manko has over 20 years of investment experience in the asset management, investment banking, private equity and corporate securities markets. From 2005 to 2010 Mr. Manko was a Partner and Chief Executive Officer of Switzerland-based BZ Fund Management Limited, where he was responsible for corporate finance, private equity investments, three public equity funds and the firm’s Special Situations and Event-Driven strategies. Prior to that Mr. Manko was a Managing Director with Deutsche Bank in London. He began his investment banking career at Merrill Lynch as a Vice President in Hong Kong and prior to that, Mr. Manko was a corporate finance attorney at Skadden, Arps, Slate, Meagher & Flom. Mr. Manko has served on the board of several companies in the bio-pharmaceutical industry and has advised numerous companies in the pharmaceutical, biotech and medtech industries. Mr. Manko earned both his B.A. and Juris Doctor from the University of Pennsylvania.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors and executive officers, and persons who own more than ten percent (10%) of our common stock, file with the SEC reports of initial ownership of our common stock and subsequent changes in that ownership and furnish to us copies of all forms they file pursuant to Section 16(a). Based solely on a review of Forms 3, 4, and 5 furnished to us or filed with the SEC in fiscal 2017, we believe all Section 16(a) filing requirements were timely made in the fiscal year ended February 28, 2017, except the following filings were late: Joseph Manko five Form 4’s; Mark Pastreich one Form 4; Eric Bauer one Form 3.
Code of Ethics
The Company has a Code of Ethics applicable to all employees, including the principal executive officer, principal financial officer, principal accounting officer or Controller. The Code of Ethics is available on the Company’s website at www.rmsmedicalproducts.com/about/code_of_ethics.pdf. The Company intends to disclose future amendments to certain provisions of the Code of Ethics, and waivers of the Code of Ethics granted to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, if any, on the website at www.rmsmedicalproducts.com within four business days following the date of any amendment or waiver. A printed copy will be sent, without charge, to any shareholder who requests it by writing to the Chief Financial Officer of Repro Med Systems, Inc., 24 Carpenter Road, Chester, NY 10918.
Audit Committee
The Audit Committee was established by our Board of Directors on May 11, 2016. The Audit Committee recommends the appointment of our independent registered public accountants, reviews our internal accounting procedures and financial statements and consults with and reviews the services provided by our independent registered public accountants, including the results and scope of their audit. The Audit Committee is currently comprised of Messrs. Radin (chair), Pastreich and Dr. Baker. Each member of this committee is “independent” within the meaning of applicable SEC rules and standards of the OTCQX, except Mr. Radin because he was with Radin, Glass & Co., our former independent auditors, until January 2015. The Board of Directors has designated Mr. Radin as the audit committee financial expert, as currently defined under the SEC rules.
The Audit Committee operates under a formal charter adopted by the Board of Directors that governs its duties and conduct. Copies of the charter can be obtained free of charge from the Company’s website at www.rmsmedicalproducts.com.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all compensation paid by us in the last two completed fiscal years for our “named executive officers”, which are:
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• | our Chief Executive Officer; |
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• | our two most highly compensated executive officers other than our Chief Executive Officer who were serving as executive officers at February 28, 2017 as that term is defined under Rule 3b-7 of the Securities Exchange Act of 1934, as amended; and |
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• | up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer at February 28, 2017. |
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Summary Compensation Table
| | | | | | | | | | | | | | | | |
| | | | | | | Stock | Option | All Other | | |
Name and Position | Year | Salary | Bonus | | Awards | Awards | Compensation | Total |
Andrew I. Sealfon, Chief Executive Officer | 2017 | $ | 425,000 | $ | — | $ | — | $ | — | $ | (1) | $ | 425,000 |
| 2016 | $ | 425,000 | $ | 70,125 | $ | — | $ | — | $ | — | $ | 495,125 |
Karen Fisher, Chief Financial Officer (2) | 2017 | $ | 193,479 | $ | 29,138 | $ | — | $ | — | $ | — | $ | 222,617 |
| 2016 | $ | 184,616 | $ | 36,075 | $ | — | $ | 98,432 | $ | — | $ | 319,123 |
Eric Bauer, Chief Operating Officer (3) | 2017 | $ | 33,420 | $ | 25,000 | $ | — | $ | 122,656 | $ | 4,000 | $ | 185,076 |
| | | | | | | | | | | | | |
Dr. Fred Ma, Chief Medical Officer (4) | 2017 | $ | 275,000 | $ | — | $ | 5,000 | $ | — | $ | — | $ | 280,000 |
| 2016 | $ | 125,000 | $ | — | $ | — | $ | — | $ | — | $ | 125,000 |
Cyril Narishkin, Former Chief Operating Officer (5) | 2017 | $ | 140,000 | $ | — | $ | — | $ | — | $ | 134,700(6) | $ | 274,700 |
| 2016 | $ | 146,550 | $ | — | $ | — | $ | — | $ | 3,125(7) | $ | 149,675 |
__________
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(1) | Mr. Sealfon is provided with an automobile that has been paid for in full by the Company. |
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(2) | 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 a minimum performance bonus of 20% of the base annual salary based on metrics of the Company-wide incentive plan, which is based on individual performance and the Company’s adjusted EBITDA target. Effective March 1, 2016, Ms. Fisher’s annual compensation was increased to $195,000. The agreement further called for the award of stock or stock options within Ms. Fisher’s first fiscal year of employment. On November 4, 2015, pursuant to the Company’s 2015 Stock Option Plan, Ms. Fisher was awarded 500,000 incentive stock options which vested on November 3, 2016 and are exercisable for $0.38 per share. The term of employment is on an at-will basis, provided that if Ms. Fisher is terminated without cause she shall receive termination benefits at her then current base salary for a period of six months following termination. |
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(3) | Mr. Bauer has an employment agreement with the Company which was entered into on January 17, 2017. Mr. Bauer’s annual base compensation is $275,000, plus he will be eligible to earn an annual bonus in accordance with the Company policy and procedure for granting of a specified executive bonus which is equivalent to 50% of base compensation based on achievement of goals, payable 50% in cash and 50% in stock of the Company. The agreement further called for the award of a stock option grant of 500,000 incentive stock options that vest quarterly over a four year term and in accordance with the Company’s current stock option plan. Vesting is automatically accelerated if Mr. Bauer’s employment is terminated by the Company without Cause (as defined in the employment agreement) after two years of employment. Mr. Bauer received a one-time sign on bonus of $25,000 payable upon hire. Mr. Bauer will receive up to $35,000 in expense reimbursement to cover costs attributable to relocation to the Chester, NY area. Mr. Bauer will also receive $2,000 per month to cover the cost of temporary housing for up to twelve (12) months from effective date of his agreement or until Mr. Bauer relocates. The term of the employment is one year from the effective date, subject to automatic renewals unless 60 days’ notice of non-renewal is provided by the Company or Mr. Bauer. The Company or Mr. Bauer may terminate Mr. Bauer’s employment at any time upon 60 days’ notice to the other, and the Company may terminate his employment agreement immediately for Cause. Upon termination of Mr. Bauer’s employment by the Company without Cause, subject to his execution of a customary general release of claims in favor of the Company and its affiliates, Mr. Bauer is entitled to receive an amount equal to (i) if the termination date is less than twelve (12) months after the effective date, six months of the cash portion (but not the stock portion) of his salary; or (ii) if the termination date is at least twelve (12) months after the effective date, twelve (12) months of the cash portion (but not the stock portion) of his salary. |
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(4) | Dr. Ma was hired as a consultant for the Company from July 2015 through October 2016 and was paid pursuant to his consulting agreement. During the period from July 2015 through January 2016, he was paid at a monthly rate of $15,000 per month, from February 2016 through July 2016 he was paid $20,000 per month, and from August 2016 through October 2016 he was paid $25,000 per month. Dr. Ma was also reimbursed for approved out of pocket expenses. Effective November 1, 2016, the Company entered into an employment agreement with Dr. Ma with an annual base salary of $300,000, plus he will be eligible to earn an annual bonus in accordance with the Company policy and procedure for granting of bonuses to management and executives. The agreement further called for quarterly equity compensation in the form of shares of common stock of the Company. The stock will be awarded on the day following the last working day of each quarter. The number of shares issued each quarter shall be determined by dividing $15,000 by the closing bid price of the Company’s common stock as reported by the OTC Markets Inc. as of the last working day of such quarter (the “Closing Price”). The quarterly equity compensation set forth in |
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| the agreement shall cease on October 31, 2017, and the parties shall negotiate any replacement compensation in good faith. During the first six months of employment Dr. Ma will also receive up to $1,000 per month to cover the cost of temporary housing and in the case he relocates to within commuting distance of the Company during the twelve (12) month period ending October 31, 2017, up to $50,000 to cover costs attributable to such relocation. If Dr. Ma’s employment is terminated by the Company other than for cause, Dr. Ma shall be entitled to receive an amount equal to (i) if the termination date is less than twelve (12) months after the effective date, his Base Salary as in effect as of the termination date, paid over time as if he were employed until the date that is twelve (12) months after the effective date; (ii) if the termination date is at least twelve (12) months after the effective date, six (6) months of the cash portion (but not the stock portion) of his base salary in effect as of the termination date, or (iii) if the termination date is at least twenty-four (24) months after the effective date, twelve (12) months of the cash portion (but not the stock portion) of his base salary in effect as of the termination date. |
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(5) | Mr. Narishkin had been a consultant with the Company since February 2015 and the monthly fees ranged from $8,250 to $16,800 per month depending on the level of support per the consulting agreement. 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 provided for payment of $16,000 per month for eight days per month, of which half was to be paid in cash and half was to be paid in shares of common stock. Effective January 1, 2016, the agreement provided for the same payment of $16,000 per month, of which seventy-five percent was to be paid in cash and twenty-five percent was to be paid in shares of common stock. On June 24, 2016, Cyril Narishkin executed a termination and general release agreement, which terminated his previous consulting agreement, and resigned as an officer and director for personal reasons. Mr. Narishkin was compensated for services as a consultant through January 31, 2017 at a monthly rate of $16,000 per month for up to eight days of service a month upon request of the Company. In accordance with the agreement, the Company repurchased 96,542 shares of common stock of the Company owned by Mr. Narishkin at an aggregate purchase price of $43,393. |
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(6) | Of this amount $6,700 represents director fees for fiscal 2017. |
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(7) | Of this amount $3,125 represents director fees for fiscal 2016. |
Officers and directors are reimbursed for travel and other expenses incurred on behalf of the Company. We offer an optional 401(k) savings plan with a company matching component to all full-time employees with 90 days of service.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information regarding the outstanding equity awards held by our named executive officers as of February 28, 2017.
2017 FISCAL YEAR OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
| | | | | |
| | Number of | Number of | | |
| | Securities | Securities | | |
| | Underlying | Underlying | | |
| | Unexercised | Unexercised | Option | Option |
| | Options | Options | Exercise | Expiration |
Name | Grant Date | Exercisable | Unexercisable | Price ($) | Date |
Karen Fisher | 11/4/2015 | 500,000(1) | — | 0.38 | 11/2/2020 |
Eric Bauer | 1/17/2017 | — | 500,000(2) | 0.41 | 1/16/2022 |
__________
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(1) | Incentive stock options granted under the 2015 Stock Option Plan. Fully vested and subject to early termination as provided in the option agreements, immediately prior to a change of control of the Company. |
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(2) | Incentive stock options granted under the 2015 Stock Option Plan. Pursuant to the terms of the stock option agreement, these options vest quarterly over a four year term and in accordance with the 2015 Stock Option Plan. Vesting is automatically accelerated if Mr. Bauer’s employment is terminated by the Company without Cause (as defined in the employment agreement) after two years of employment. |
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Director Compensation
The following table provides compensation information for the year ended February 28, 2017 for each non-employee member of our Board of Directors:
2017 FISCAL YEAR DIRECTOR COMPENSATION TABLE
| | | | | | | | | | | | |
Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($) | | All Other Compensation ($) | | Total ($) |
Paul M. Baker | | | 12,500 | | | 12,500 | | | — | | | 25,000 |
Mark L. Pastreich | | | 12,500 | | | 12,500 | | | — | | | 25,000 |
Brad A. Sealfon (1) | | | 12,500 | | | 12,500 | | | 7,744 | | | 32,744 |
Arthur J. Radin | | | 12,500 | | | 12,500 | | | — | | | 25,000 |
David W. Anderson | | | 12,500 | | | 12,500 | | | — | | | 25,000 |
Joseph M. Manko, Jr. (2) | | | 9,986 | | | 9,986 | | | — | | | 19,972 |
__________
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(1) | Brad Sealfon was employed by the Company as a consultant for a special project. |
(2) | The stock awards were issued to Horton Capital Partners Fund L.P. |
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, effective September 1, 2015. We pay no additional remuneration to our employees serving as directors. All directors, including our employee directors (if any), are reimbursed for reasonable out-of-pocket expenses incurred in connection with their attendance at meetings of the Board of Directors and committee meetings. The Board of Directors has not made any changes to director compensation for fiscal 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The table below sets forth, as of May 5, 2017, the number of shares of common stock beneficially owned by each person owning more than 5% of the outstanding shares, by each named executive officer and director, and by all executive officers and directors as a group. Except as otherwise noted, the address of each person is c/o Repro Med Systems, Inc., 24 Carpenter Road, Chester, NY, 10918.
We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
Percentage ownership is based on 37,821,198 shares of common stock outstanding at May 5, 2017. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, except as indicated by the footnotes below, we deemed outstanding shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of May 5, 2017, to be outstanding ignoring the withholding of shares of common stock to cover applicable taxes. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. We did not deem outstanding shares of common stock issuable as directors’ fees or pursuant to employment contracts within 60 days after May 5, 2017, as the number of shares is not able to be calculated at this time. Beneficial ownership representing less than 1% is denoted with an asterisk (*).
The information provided in the table is based on our records, information filed with the SEC, and information provided to us, except where otherwise noted.
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| | | | | | | | | | |
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 | | | 1,845,923 | | | 5 | % | | (2) | |
Mark Pastreich | | | 423,243 | | | 1 | % | | — | |
Arthur J. Radin | | | 295,743 | | | 1 | % | | — | |
Brad A. Sealfon | | | 115,177 | | | * | | | — | |
Joseph M. Manko, Jr | | | 5,857,046 | | | 15 | % | | (3) | |
David W. Anderson | | | 30,177 | | | * | | | — | |
Karen Fisher | | | 500,000 | | | 1 | % | | — | |
Eric Bauer | | | 52,083 | | | * | | | — | |
Dr. Fred Ma | | | 46,164 | | | * | | | — | |
Cyril Narishkin | | | — | | | * | | | — | |
| | | | | | | | | | |
All Directors and Officers as a Group | | | 17,292,806 | | | 44 | % | | (3) | |
| | | | | | | | | | |
Horton Capital Partners Fund, LP | | | 5,857,046 | | | 15 | % | | (3) | |
| | | | | | | | | | |
Total of all Directors, Officers and 5% stockholders | | | 17,292,806 | | | 44 | % | | — | |
__________
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^ | 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. |
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(1) | Does not include approximately 115,000 shares of common stock owned by Mr. Andrew Sealfon’s wife, 107,824 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. |
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(2) | Includes shares owned by Andrea Baker, Dr. Baker’s wife. |
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(3) | Each of Mr. Manko and Horton Capital Management, LLC, a Delaware limited liability company (“HCM”), may be deemed to beneficially own 5,857,046 shares of common stock, including 4,981,531 shares of common stock held by Horton Capital Partners Fund, LP, a Delaware limited partnership (“HCPF”), and excluding 1,000,000 shares of common stock issuable upon the exercise of the Warrant, dated August 8, 2014, issued to HCPF due to a conversion cap. Such conversion cap 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 Securities Exchange Act of 1934, as amended) in excess of 9.99% of the shares of common stock of the Company then outstanding. Pursuant to investment management agreements, HCM maintains investment and voting power with respect to 4,981,531 shares of common stock held by HCPF. Despite the delegation of investment and voting power to HCM, Horton Capital Partners LLC, a Delaware limited liability company (“HCP”), may be also deemed to be the beneficial owner of 4,981,531 shares of common stock held by HCPF because HCP has the right to acquire investment and voting power through termination of investment management agreements with HCM. In addition, HCM acts as an investment adviser to certain managed accounts. Under investment management agreements with managed account clients, HCM has investment and voting power with respect to 875,515 shares of common stock of the Company held in such managed accounts. HCP is the general partner of HCPF. Mr. Manko is the managing member of both HCM and HCP. The address of Mr. Manko, HCM, HCP and HCPF is 1717 Arch Street, 39th Floor, Philadelphia, PA 19103. |
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Equity Compensation Plan Information
as of February 28, 2017
| | | |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| (a) | (b) | (c) |
Equity compensation plans approved by security holders | 1,345,000 | $0.39 | 2,655,000 |
Equity compensation plans not approved by security holders (1) | — | — | — |
Total | 1,345,000 | $0.39 | 2,655,000 |
__________
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(1) | Non-employee directors receive quarterly shares of common stock in an amount equal to $12,500 as determined by the closing bid price of the Company’s common stock as reported by the OTC Markets Inc. on the last day of the quarter (the “Closing Price”). Pursuant to Dr. Ma’s employment agreement, Dr. Ma receives quarterly shares of common stock in an amount equal to $15,000 as determined by the Closing Price. The Company has reserved 200,000 shares for issuance to Dr. Ma, of which 10,870 have been issued as of February 28, 2017. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
On December 20, 2013, we executed an agreement effective March 1, 2014, with a Company director, Dr. Paul Mark Baker, to provide clinical research and support services related to new and enhanced applications for the FREEDOM60 System. Authorized by the Board of Directors, the agreement provided for payment of 420,000 shares of common stock valued at $0.20 per share over a three-year period.
To reduce corporate travel expenses, we maintain and operate a corporate aircraft. Since 1992, the aircraft has been leased from AMI Aviation, Inc. Mr. Andrew Sealfon, the Company’s President and Chief Executive Officer, is a majority shareholder in AMI Aviation. The lease expenses paid were $21,500 in each of the fiscal years 2017 and 2016. The original lease agreement has expired and the Company is currently on a month-to-month basis for rental payments. 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 leased by the Company located at 24 Carpenter Road, Chester, New York 10918. The Company is in year eighteen 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. The Company’s current annual lease payment is approximately $132,500 plus 65% of the building’s annual property taxes, amounting to $48,455 for the year ended February 28, 2017.
In affirmatively determining whether a director is “independent”, the Board of Directors uses the definition of independence set forth in the rules of the OTCQX. The Board of Directors, in applying these standards, has affirmatively determined that its current “independent” directors are Messrs. Pastreich, Anderson, Manko and Dr. Baker.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following 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 28, 2017 and February 29, 2016, respectively.
| | | | |
Fee Category | | Fiscal 2017 Fees | | Fiscal 2016 Fees |
| | | | |
Audit Fees | | $39,000 | | $39,000 |
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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 provided by the independent auditors in connection with statutory and regulatory filings or engagements for the fiscal years ended February 28, 2017, and February 29, 2016, respectively.
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 for services shown above were pre-approved by the Board of Directors. Effective July 2016, the Audit Committee of the Board of Directors is responsible for evaluating and pre-approving the audit scope and the compensation of the independent auditors and any non-audit services to be provided by the independent auditors, including evaluating the effect of such services on the auditor’s independence.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The Financial Statement Schedules are filed in Part II, Item 8 hereof.
The following exhibits are filed herewith or incorporated by reference as part of this Annual Report.
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Exhibit No. | | Description |
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3(i) | | Amended and Restated Articles of Incorporation dated December 28, 2016 (previously filed with Form 10-Q for the quarter ended November 30, 2016). |
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3(ii) | | Amended and Restated By-Laws dated October 5, 2016 (previously filed with Form 10-Q for the quarter ended August 31, 2016). |
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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). |
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10.1 | | Executive Employment Agreement for Karen Fisher, Chief Financial Officer dated January 15, 2015 (previously filed with Form 10-Q for the quarter ended August 31, 2016 and incorporated by reference). |
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10.2 | | Executive Employment Agreement for Fred Ma, Chief Medical Officer dated November 1, 2016, filed herewith. |
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10.3 | | Executive Employment Agreement for Eric Bauer, Chief Operating Officer dated January 17, 2017, filed herewith. |
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31.1 | | Certification of the Principal Executive Officer of registrant required under Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. |
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31.2 | | Certification of the Principal Financial Officer of registrant required under Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. |
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32.1 | | Certification of the Principal Executive Officer of registrant required under Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. |
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32.2 | | Certification of the Principal Financial Officer of registrant required under Section 906 of the Sarbanes-Oxley Act of 202, filed herewith. |
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101 | | Interactive Data File (Annual Report on Form 10-K, for the fiscal year ended February 28, 2017), furnished in XBRL (eXtensible Business Reporting Language). |
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 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 5, 2017.
REPRO MED SYSTEMS, INC.
/s/ Andrew I. Sealfon
Andrew I. Sealfon, President, Chairman of the Board, Director, Chief Executive Officer
/s/ Karen Fisher
Karen Fisher, Chief Financial Officer and Treasurer
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 5, 2017.
/s/ Andrew I. Sealfon
Andrew I. Sealfon, President, Chairman of the Board, Director, and Chief Executive Officer
/s/ Dr. Paul Mark Baker
Dr. Paul Mark Baker, 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
/s/ Joseph M. Manko, Jr.
Joseph M. Manko, Jr., Director
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