Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2019 | Nov. 06, 2019 | |
Cover [Abstract] | ||
Entity Registrant Name | REPRO MED SYSTEMS INC | |
Entity Central Index Key | 0000704440 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Incorporation, State or Country Code | NY | |
Entity File Number | 0-12305 | |
Title of 12(b) Security | Common stock, $0.01 par value | |
Trading Symbol | KRMD | |
Entity Reporting Status Current | Yes | |
Entity Interactive Data Current | Yes | |
Entity Small Business | true | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Ex Transition Period | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 39,501,870 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2019 |
BALANCE SHEETS (Unaudited)
BALANCE SHEETS (Unaudited) - USD ($) | Sep. 30, 2019 | Dec. 31, 2018 |
CURRENT ASSETS | ||
Cash and cash equivalents | $ 5,129,028 | $ 3,738,803 |
Certificates of deposit | 1,517,927 | |
Accounts receivable less allowance for doubtful accounts of $36,609 at September 30, 2019 and $37,500 at December 31, 2018 | 3,546,634 | 1,425,854 |
Inventory | 2,738,682 | 2,103,879 |
Prepaid expenses | 453,151 | 246,591 |
TOTAL CURRENT ASSETS | 11,867,495 | 9,033,054 |
Property and equipment, net | 636,928 | 858,781 |
Patents, net of accumulated amortization of $273,846 and $239,581 at September 30, 2019 and December 31, 2018, respectively | 786,164 | 632,156 |
Right of use assets, net | 406,954 | |
Deferred tax asset | 1,466 | |
Other assets | 19,582 | 19,582 |
TOTAL ASSETS | 13,717,123 | 10,545,039 |
CURRENT LIABILITIES | ||
Deferred capital gain - current | 3,763 | |
Accounts payable | 874,977 | 453,498 |
Accrued expenses | 1,178,702 | 688,649 |
Accrued payroll and related taxes | 111,359 | 421,714 |
Accrued tax liability | 16,608 | |
Finance lease liability - current | 3,242 | |
Operating lease liability - current | 135,275 | |
TOTAL CURRENT LIABILITIES | 2,303,555 | 1,584,232 |
Deferred tax liability | 133,097 | |
Operating lease liability, net of current portion | 271,679 | |
TOTAL LIABILITIES | 2,708,331 | 1,584,232 |
STOCKHOLDERS' EQUITY | ||
Common stock, $0.01 par value; 75,000,000 shares authorized, 42,228,658 and 40,932,911 shares issued, 39,491,427 and 38,195,680 shares outstanding at September 30, 2019 and December 31, 2018, respectively | 422,286 | 409,329 |
Additional paid-in capital | 5,985,636 | 4,595,214 |
Retained earnings | 4,945,074 | 4,300,468 |
TOTAL STOCKHOLDERS' EQUITY BEFORE TREASURY STOCK | 11,352,996 | 9,305,011 |
Less: Treasury stock, 2,737,231 shares at September 30, 2019 and December 31, 2018, respectively, at cost | (344,204) | (344,204) |
TOTAL STOCKHOLDERS' EQUITY | 11,008,792 | 8,960,807 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 13,717,123 | $ 10,545,039 |
BALANCE SHEETS (Unaudited) (Par
BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) | Sep. 30, 2019 | Dec. 31, 2018 |
Statement of Financial Position [Abstract] | ||
Accounts receivable, allowance for doubtful accounts | $ 36,609 | $ 37,500 |
Patents, accumulated amortization | $ 273,846 | $ 239,581 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized | 75,000,000 | 75,000,000 |
Common stock, issued | 42,228,658 | 40,932,911 |
Common stock, outstanding | 39,491,427 | 38,195,680 |
Treasury stock | 2,737,231 | 2,737,231 |
STATEMENTS OF OPERATIONS (UNAUD
STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Income Statement [Abstract] | ||||
NET SALES | $ 6,617,397 | $ 4,547,187 | $ 16,940,487 | $ 13,082,737 |
Cost of goods sold | 2,234,489 | 1,655,619 | 6,033,961 | 4,985,761 |
Gross Profit | 4,382,908 | 2,891,568 | 10,906,526 | 8,096,976 |
OPERATING EXPENSES | ||||
Selling, general and administrative | 2,441,381 | 1,917,127 | 6,976,684 | 5,513,727 |
Litigation | 864,009 | 286,487 | 2,481,471 | 592,787 |
Research and development | 170,260 | 126,923 | 450,454 | 160,735 |
Depreciation and amortization | 82,774 | 78,345 | 252,594 | 228,900 |
Total Operating Expenses | 3,558,424 | 2,408,882 | 10,161,203 | 6,496,149 |
Net Operating Profit | 824,484 | 482,686 | 745,323 | 1,600,827 |
Non-Operating Income/(Expense) | ||||
Loss on currency exchange | (9,358) | (5,842) | (20,283) | (16,256) |
Gain on disposal of fixed asset, net | 6,000 | 49,740 | 6,000 | |
Interest, net and other income, net | 23,368 | 6,972 | 59,091 | 13,088 |
TOTAL OTHER INCOME | 14,010 | 7,130 | 88,548 | 2,832 |
INCOME BEFORE TAXES | 838,494 | 489,816 | 833,871 | 1,603,659 |
Income Tax Expense | (186,681) | (103,263) | (189,265) | (337,956) |
NET INCOME | $ 651,813 | $ 386,553 | $ 644,606 | $ 1,265,703 |
NET INCOME PER SHARE | ||||
Basic (in dollars per share) | $ 0.02 | $ 0.01 | $ 0.02 | $ 0.03 |
Diluted (in dollars per share) | $ 0.02 | $ 0.01 | $ 0.02 | $ 0.03 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||
Basic (in shares) | 39,022,298 | 38,194,682 | 38,534,021 | 38,104,393 |
Diluted (in shares) | 39,298,408 | 38,985,684 | 38,734,083 | 38,875,737 |
STATEMENTS OF CASH FLOWS (UNAUD
STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 9 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net Income | $ 644,606 | $ 1,265,703 |
Adjustments to reconcile net income to net cash (used in)/provided by operating activities: | ||
Stock based compensation expense | 897,300 | 154,925 |
Depreciation and amortization | 252,594 | 228,900 |
Deferred capital gain - building lease | (3,763) | (16,860) |
Deferred taxes | 134,563 | 10,834 |
Gain on disposal of fixed asset | (49,740) | (6,000) |
Changes in operating assets and liabilities: | ||
(Increase)/Decrease in accounts receivable | (2,120,780) | 351,319 |
Increase in inventory | (634,803) | (290,722) |
Increase in prepaid expense and other assets | (206,560) | (177,346) |
Increase in accounts payable | 421,479 | 137,521 |
Decrease in accrued payroll and related taxes | (310,355) | (213,700) |
Increase/(Decrease) in accrued expense | 490,053 | (30,823) |
Decrease in accrued tax liability | (16,608) | (60,852) |
NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES | (502,014) | 1,352,899 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Payments for capital expenditures | (158,193) | (188,006) |
Purchase of certificate of deposit | (1,500,000) | |
Payments for patents | (188,274) | (137,858) |
Proceeds on disposal of fixed asset | 217,821 | 6,000 |
Proceeds from certificates of deposit | 1,517,927 | 92,266 |
NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES | 1,389,281 | (1,727,598) |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Stock issuances | 508,900 | 51,250 |
Payment for cancelled shares | (2,820) | (1,755) |
Finance lease | (3,122) | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 502,958 | 49,495 |
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | 1,390,225 | (325,204) |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 3,738,803 | 3,974,536 |
CASH AND CASH EQUIVALENTS, END OF PERIOD | 5,129,028 | 3,649,332 |
Cash paid during the periods for: | ||
Interest | 280 | |
Taxes | 103,465 | 378,000 |
NON-CASH FINANCING AND INVESTING ACTIVITIES | ||
Issuance of common stock as compensation | $ 256,525 | $ 103,333 |
NATURE OF OPERATIONS AND SUMMAR
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS REPRO MED SYSTEMS, INC. (the “Company”, “KORU Medical” or “we”) designs, manufactures and markets proprietary portable and innovative medical devices primarily for the ambulatory infusion market as governed by the United States Food and Drug Administration (the “FDA”) quality and regulatory system and international standards for quality system management. The Company operates as one segment. FISCAL YEAR END The Company’s fiscal year end is December 31. BASIS OF PRESENTATION The accompanying unaudited financial statements as of September 30, 2019, have been prepared in accordance with generally accepted accounting principles and with instructions to SEC regulation S-X for interim financial statements. In the opinion of the Company’s management, the financial statements contain all adjustments consisting of normal recurring accruals necessary to present fairly the Company’s financial position as of September 30, 2019, and the results of operations and cash flow for the three and nine month periods ended September 30, 2019, and 2018. The results of operations for the nine months ended September 30, 2019 and 2018 are not necessarily indicative of the results to be expected for the full year. These interim financial statements should be read in conjunction with the financial statements and notes thereto of the Company and management’s discussion and analysis of financial condition and results of operations included in the Company’s Annual Report for the twelve months ended December 31, 2018, as filed with the Securities and Exchange Commission on Form 10-K. 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 its depository, which exceeds the FDIC insurance limits and is, therefore, uninsured. CERTIFICATES OF DEPOSIT The certificate of deposit was recorded at cost plus accrued interest. The certificate of deposit earned interest at a rate of 1.73% and matured in May 2019, at which time the funds were moved into a money market account earning interest at 2.25%. Effective September 24, 2019, the money market account interest rate dropped to 1.85%. 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 2016 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 a stock option plan under which it grants stock options to certain executives, key employees and 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. USE OF ESTIMATES IN THE FINANCIAL STATEMENTS The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Important estimates include but are not limited to, asset lives, valuation allowances, inventory, and accruals. REVENUE RECOGNITION The 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 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 revenues result from the sale of assembled products. We recognize revenues when shipment occurs and at which point the customer obtains control and ownership of the goods. Shipping 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. LEASES In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by the Company for those leases classified as operating leases under current U.S. GAAP, while our accounting for capital leases remains substantially unchanged. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard became effective for us January 1, 2019. The standard had a material impact on our balance sheets, but did not have a material impact on our income statements. See NOTE 7 LEASES. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2016, the FASB issued ASU No. 2016-13—Financial Instruments – Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption. In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): 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 permitted upon issuance of this ASU. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective 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. 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. 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 September 30, 2019, the Company does not believe that any of its assets are impaired. RECLASSIFICATION Certain reclassifications have been made to conform prior period data to the current presentation. These reclassifications had no effect on reported net income. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 9 Months Ended |
Sep. 30, 2019 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE 2 RELATED PARTY TRANSACTIONS LEASED AIRCRAFT From 1992 to 2018, we leased an aircraft from AMI Aviation, Inc., of which our former President and Chief Executive Officer, Andrew Sealfon, was a majority shareholder. The lease payments were zero and $1,292 for the three months ended September 30, 2019 and 2018, respectively and zero and $9,045 for the nine months ended September 30, 2019 and 2018 respectively. Upon the termination of Mr. Sealfon as President and Chief Executive Officer on July 25, 2018, the Company ceased leasing this aircraft. BUILDING LEASE Mr. Pastreich, a former director, is a principal in the entity that owns the building leased by us for our corporate headquarters and manufacturing facility at 24 Carpenter Road, Chester, New York 10918. On February 28, 2019, we completed year twenty of a twenty year lease with monthly lease payments of $11,042. 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 a monthly lease amount of $12,088. The Company exercised three additional renewal options commencing September 1, 2019 through February 28, 2021. The lease payments were $36,264 and $33,126 for the three months ended September 30, 2019 and 2018, respectively, and $106,700 and $99,378 for the nine months ended September 30, 2019 and 2018, respectively. The Company also paid property taxes in the amount of $13,749 and $12,431 for the three months ended September 30, 2019 and 2018, respectively and $39,165 and $37,863 for the nine months ended September 30, 2019 and 2018, respectively. |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 9 Months Ended |
Sep. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | NOTE 3 PROPERTY AND EQUIPMENT Property and equipment consists of the following at: September 30, 2019 December 31, 2018 Land $ — $ 54,030 Building — 171,094 Furniture, office equipment, and leasehold improvements 1,120,416 1,058,507 Manufacturing equipment and tooling 1,309,172 1,279,865 2,429,588 2,563,496 Less: accumulated depreciation (1,792,660 ) (1,704,715 ) Property and equipment, net $ 636,928 $ 858,781 On May 21, 2019, the Company sold the house it owned for $0.2 million. Depreciation expense was $69,740 and $68,991 for the three months ended September 30, 2019 and 2018, respectively, and $218,328 and $202,975 for the nine months ended September 30, 2019 and 2018, respectively. |
LEGAL PROCEEDINGS
LEGAL PROCEEDINGS | 9 Months Ended |
Sep. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
LEGAL PROCEEDINGS | NOTE 4 LEGAL PROCEEDINGS We are involved in several lawsuits with our principal competitor, EMED Technologies Corporation (“EMED”). 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 business tort claims. We are vigorously defending against all of the lawsuits 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 seeking a declaratory judgment establishing the invalidity of the patent referenced in the letter – EMED’s US patent 8,500,703 – “‘703.” EMED answered the complaint and asserted patent infringement of the ‘703 patent and several counterclaims relating generally to claims of unfair business practices against us. We responded by adding several claims against EMED, generally relating to claims of unfair business practices on EMED’s part. Both parties have requested injunctive relief and monetary damages in unspecified amounts. On June 16, 2015, the California court entered a preliminary injunction against KORU Medical making certain statements regarding what products were cleared by the FDA for use, or could be safely used, with KORU Medical’s Freedom60 pump, without voiding the product warranty. 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 January 25, 2018, EMED filed an Appeal Brief with a Petition for Revival, which was accepted. On April 9, 2018, the USPTO denied EMED’s request for reconsideration of the order rejecting all claims in the ‘703 patent. On June 26, 2019, the Examiner responded to EMED’s appeal brief and maintained all of the final rejections. Both the California case and EMED’s appeal of the USPTO rejections are pending. The second court case was filed by EMED in the United States District Court for the Eastern District of Texas on June 25, 2015, claiming patent infringement on another of its patents (US 8,961,476 – “‘476”), by our needle sets, and seeking unspecified monetary damages (“ED Texas ‘476 matter”). This ‘476 patent is related to the now rejected EMED ‘703 patent. On September 17, 2015, we requested an inter partes review (“IPR”) of the ‘476 patent, and in response to our request, the Court entered an order staying the ED Texas ‘476 matter until after the Patent Trial and Appeal Board (“PTAB”) of the USPTO made a decision regarding the validity of the 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 the ‘476 patent, 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 marketing and sales of our 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 resulted in the transfer of the third case to SDNY (“SDNY ‘576 matter”) on May 30, 2018. 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 asserting antitrust, defamation and unfair business practice claims, and seeking unspecified damages, similar to those previously presented in the California case, described above. The fourth case also names Andrew Sealfon, then President and CEO of KORU Medical, individually as a defendant. 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”). The California Court set an initial schedule for a preliminary motion phase and on August 30, 2019 EMED filed a second amended complaint. On September 30, 2019, KORU Medical and Sealfon filed a motion to dismiss that complaint, and Sealfon filed a separate motion to dismiss the case as to him for lack of jurisdiction. Ultimately, we expect this case to be coordinated or consolidated 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 proceeded 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. In April 2019, EMED served its damages expert’s report opining that EMED’s past infringement damages amount to $1.5 million, and in May KORU Medical served its damages expert’s rebuttal report opining that EMED’s expert miscalculated damages which if properly calculated would amount to less than $100,000. The Texas Court had set a trial date of August 19, 2019, for the trial of the ED Texas ‘476 matter. On June 24, 2019, the Texas Court Magistrate Judge issued a Report and Recommendation decision finding no infringement, literally or under the doctrine of equivalents, by KORU Medical’s accused products. EMED filed its objections on June 26, 2019. On June 28, 2019 the United States District Judge for the Eastern District of Texas issued a Final Judgment in favor of KORU Medical and adopted the decision of the Magistrate Judge that was issued on June 24, 2019, overruled EMED’s objections, awarded court costs to KORU Medical, and dismissed the case. A final judgment has been entered. KORU Medical has submitted its Bill of Costs for approximately $16,000 and moved to declare the case exceptional and for recovery of its attorney fees and expenses of approximately $2.3 million in defense of EMED’s assertion of the ‘476 Patent. EMED has objected to our Bill of Costs, opposed the motion for fees, and filed a notice of appeal of the non-infringement judgment to the Court of Appeals for the Federal Circuit. On September 16, 2019, EMED filed its opening appeal brief. KORU Medical plans to oppose EMED’s appeal. The ED Texas court has stayed proceedings in the district court until the appeal process is completed. KORU Medical’s fee motion remains pending lifting of the stay. The SDNY ‘576 matter proceeded in the New York court through claim construction on the ‘576 Patent, whereupon KORU Medical sought permission from the New York court to file a motion for summary judgement, to which EMED objected. The New York court granted KORU Medical’s request, and on July 10, 2019, KORU Medical filed its motion for summary judgement. EMED opposed that motion, and on August 30, 2019, the New York court granted summary judgement, and dismissed the lawsuit. A final judgement has been entered. KORU Medical has submitted a Bill of Costs for approximately $1,500, to which EMED has objected, and has moved the New York court to declare the case exceptional and for recovery of its attorney fees and expenses of at least $1.16 million. EMED has opposed that motion, which is now fully briefed and has been referred to a United States District Court Magistrate Judge to prepare a report and recommendation. EMED also has appealed the New York court’s judgment of non-infringement to the Court of Appeals of the Federal Circuit, which matter is pending. EMED’s opening appeal brief is currently due November 8, 2019. 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 conducted a court-sponsored mediation session, which did not result in settlement. Although we believe KORU Medical has meritorious claims and defenses in all 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. |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 9 Months Ended |
Sep. 30, 2019 | |
Share-based Payment Arrangement [Abstract] | |
STOCK-BASED COMPENSATION | NOTE 5 STOCK-BASED COMPENSATION On June 29, 2016, the Board of Directors amended the 2015 Stock Option Plan (as amended, the “Plan”) authorizing the Company to grant awards to certain executives, key employees, and consultants under the Plan, which was approved by shareholders at the Annual Meeting held on September 6, 2016. The total number of shares of Common Stock, with respect to which awards may be granted pursuant to the Plan, may not exceed 6,000,000 pursuant to an amendment to the Plan approved by shareholders on April 23, 2019 at the 2019 Annual Meeting of Shareholders. As of September 30, 2019, the Company had 3,897,000 time based stock options outstanding to certain executives, key employees and consultants under the Plan, of which 1,650,000 were issued during the nine months ended September 30, 2019. The Company also had 1,000,000 performance based options outstanding under the Plan as of September 30, 2019, to its President and Chief Executive Officer, of which all were issued during the nine months ending September 30, 2019. On February 20, 2019, the Board of Directors of the Company approved an increase in compensation for each non-employee director from $25,000 to $50,000 annually effective January 1, 2019 and an additional $10,000 annually for the chair of each Board committee effective February 20, 2019, in each case to be paid quarterly half in cash and half in common stock at the end of each fiscal quarter. Pursuant to Daniel S. Goldberger’s employment agreement dated October 12, 2018, on February 1, 2019, when Donald B. Pettigrew was appointed to President and Chief Executive Officer, Mr. Goldberger was awarded a performance bonus in the amount of $270,000 to be paid half in cash and half in stock on April 1, 2019. The number of shares that were issued totaled 90,604 and was based upon the closing price of the Common Stock of the Company on February 1, 2019 as reported by the OTCQX. These shares were issued on April 3, 2019. 2015 STOCK OPTION PLAN, as amended Time Based Stock Options The per share weighted average fair value of stock options granted during the nine months ended September 30, 2019 and September 30, 2018 was $1.33 and $0.68, 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 nine months ended September 30, 2019 and September 30, 2018. 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. September 30, 2019 2018 Dividend yield 0.00% 0.00% Expected Volatility 56.1 – 60.7% 62.8 – 65.2% Weighted-average volatility — — Expected dividends — — Expected term (in years) 10 Years 5 Years Risk-free rate 1.60 – 2.72% 2.80 – 2.90% The following table summarizes the status of the Plan with respect to time based stock options: Nine months Ended September 30, 2019 2018 Shares Weighted Shares Weighted Outstanding at January 1 2,419,000 $ 1.00 1,038,000 $ 0.41 Granted 1,650,000 $ 1.92 1,018,000 $ 1.23 Exercised 160,000 $ 0.37 125,000 $ 0.41 Forfeited 12,000 $ 0.87 12,000 $ 0.87 Outstanding at September 30 3,897,000 $ 1.41 1,919,000 $ 0.85 Options exercisable at September 30 1,037,885 $ 0.81 666,969 $ 0.40 Weighted average fair value of options granted during the period — $ 1.33 — $ 0.68 Stock-based compensation expense $ 473,139 — $ 51,592 Total stock-based compensation expense totaled $473,139 and $51,592 for the nine months ended September 30, 2019 and 2018, respectively. Cash received from option exercises for the nine months ended September 30, 2019 and 2018 was $58,900 and $51,250, respectively. The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2019 and 2018, was $1.33 and $0.68, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2019 and 2018, was $30,022 and $30,664, respectively. The following table presents information pertaining to options outstanding at September 30, 2019: Range of Exercise Price Number Weighted Weighted Number Weighted $ 0.38 – 3.15 3,897,000 7 years $ 1.41 1,037,885 $ 0.81 As of September 30, 2019, there was $2,802,411 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 42 months. The total fair value of shares vested as of September 30, 2019 and 2018, was $506,729 and $139,569, respectively. Performance Based Stock Options The per share weighted average fair value of stock options granted during the nine months ended September 30, 2019 and 2018 was $1.16 and zero, respectively. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the nine months ended September 30, 2019 and September 30, 2018. 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. September 30, 2019 2018 Dividend yield 0.00% — Expected Volatility 58.9% — Weighted-average volatility — — Expected dividends — — Expected term (in years) 10 Years — Risk-free rate 2.07% — The following table summarizes the status of the Plan with respect to performance based stock options: Nine months Ended September 30, 2019 2018 Shares Weighted Shares Weighted Outstanding at January 1 — $ — — $ — Granted 1,000,000 $ 1.70 — $ — Exercised — $ — — $ — Forfeited — $ — — $ — Outstanding at September 30 1,000,000 $ 1.70 — $ — Options exercisable at September 30 — $ — — $ — Weighted average fair value of options granted during the period — $ 1.16 — $ — Stock-based compensation expense — $ 167,636 — $ — Total performance stock-based compensation expense totaled $167,636 and zero for the nine months ended September 30, 2019 and 2018, respectively. The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2019 and September 30, 2018, was $1.16 and zero, respectively. The following table presents information pertaining to performance based options outstanding at September 30, 2019: Range of Exercise Price Number Weighted Weighted Number Weighted $1.70 1,000,000 10 years $ 1.70 — $ — As of September 30, 2019, there was $994,925 of total unrecognized compensation cost related to non-vested performance share option based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 31 months. The total fair value of shares vested as of September 30, 2019 and 2018 was zero for both periods. |
DEBT OBLIGATIONS
DEBT OBLIGATIONS | 9 Months Ended |
Sep. 30, 2019 | |
Debt Disclosure [Abstract] | |
DEBT OBLIGATIONS | NOTE 6 DEBT OBLIGATIONS On February 8, 2018, the Company issued a Promissory Note to KeyBank National Association (“KeyBank”) in the amount of $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 establish 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 loan and the Company executed a Commercial Security Agreement as collateral for the loan. As of September 30, 2019, the Company had no outstanding amounts against the line of credit. |
LEASES
LEASES | 9 Months Ended |
Sep. 30, 2019 | |
Leases [Abstract] | |
LEASES | NOTE 7 LEASES We have finance and operating leases for our corporate office and certain office and computer equipment. Our leases have remaining lease terms of 1 to 3 years, some of which include options to extend the leases annually and some with options to terminate the leases within 1 year. The components of lease expense were as follows: Three Months Ended Nine Months Ended Operating lease cost $ 37,922 $ 111,672 Finance lease cost: Amortization of right-of-use assets $ 1,061 $ 3,182 Interest on lease liabilities 47 178 Total finance lease cost $ 1,108 $ 3,360 Supplemental cash flow information related to leases was as follows: Three Months Ended Nine Months Ended Cash paid for amounts included in the measurement of lease liabilities: Finance cash flows from finance leases $ 1,053 $ 3,122 Finance lease cost: Amortization of right-of-use assets $ 1,061 $ 3,182 Interest on lease liabilities 47 178 Total finance lease cost $ 1,108 $ 3,360 Supplemental balance sheet information related to leases was as follows: Nine Months Ended Operating Leases Operating lease right-of-use assets $ 406,954 Operating lease current liabilities 135,275 Operating lease long term liabilities 271,679 Total operating lease liabilities $ 406,954 Finance Leases Property and equipment, at cost $ 6,363 Accumulated depreciation 3,182 Property and equipment, net $ 3,181 Finance lease current liabilities 3,242 Finance lease long term liabilities — Total finance lease liabilities $ 3,242 Nine Months Ended Weighted Average Remaining Lease Term Operating leases 3 Years Finance leases 1 Year Weighted Average Discount Rate Operating leases 4.75% Finance leases 4.75% Maturities of lease liabilities are as follows: Year Ending December 31, Operating Leases Finance Leases 2019 $ 37,922 $ 1,100 2020 151,685 2,206 2021 149,476 — 2022 97,256 — Total lease payments 436,339 3,306 Less imputed interest (29,385 ) (64 ) Total $ 406,954 $ 3,242 |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2019 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 8 SUBSEQUENT EVENTS On September 30, 2019, R. John Fletcher was appointed Chairman of the Board. Mr. Fletcher succeeds Daniel S. Goldberger who resigned as Executive Chairman of the Company in connection with his appointment as Chief Executive Officer of a bioelectronic medical device company. Mr. Goldberger remains with KORU Medical as a non-executive member of the Board of Directors. In Mr. Fletcher’s role as Chairman, he will receive an additional $50,000 in annual compensation, to be paid quarterly in shares of KORU Medical common stock based on the closing price of the stock on the last day of each quarter. On October 14, 2019, KORU Medical announced that its common stock was approved for listing on The Nasdaq Capital Market and began trading on October 17, 2019 under its then current symbol “REPR”. On October 23, 2019, the Company announced it will operate under a new dba name, KORU Medical Systems, in place of RMS Medical Products. Reflecting this change, the Company’s common stock commenced trading under the new ticker symbol “KRMD” effective October 24, 2019. |
NATURE OF OPERATIONS AND SUMM_2
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
NATURE OF OPERATIONS | NATURE OF OPERATIONS REPRO MED SYSTEMS, INC. (the “Company”, “KORU Medical” or “we”) designs, manufactures and markets proprietary portable and innovative medical devices primarily for the ambulatory infusion market as governed by the United States Food and Drug Administration (the “FDA”) quality and regulatory system and international standards for quality system management. The Company operates as one segment. |
FISCAL YEAR END | FISCAL YEAR END The Company’s fiscal year end is December 31. |
BASIS OF PRESENTATION | BASIS OF PRESENTATION The accompanying unaudited financial statements as of September 30, 2019, have been prepared in accordance with generally accepted accounting principles and with instructions to SEC regulation S-X for interim financial statements. In the opinion of the Company’s management, the financial statements contain all adjustments consisting of normal recurring accruals necessary to present fairly the Company’s financial position as of September 30, 2019, and the results of operations and cash flow for the three and nine month periods ended September 30, 2019, and 2018. The results of operations for the nine months ended September 30, 2019 and 2018 are not necessarily indicative of the results to be expected for the full year. These interim financial statements should be read in conjunction with the financial statements and notes thereto of the Company and management’s discussion and analysis of financial condition and results of operations included in the Company’s Annual Report for the twelve months ended December 31, 2018, as filed with the Securities and Exchange Commission on Form 10-K. |
CASH AND CASH EQUIVALENTS | 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 its depository, which exceeds the FDIC insurance limits and is, therefore, uninsured. |
CERTIFICATES OF DEPOSIT | CERTIFICATES OF DEPOSIT The certificate of deposit was recorded at cost plus accrued interest. The certificate of deposit earned interest at a rate of 1.73% and matured in May 2019, at which time the funds were moved into a money market account earning interest at 2.25%. Effective September 24, 2019, the money market account interest rate dropped to 1.85%. |
INVENTORY | 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 | PATENTS Costs incurred in obtaining patents have been capitalized and are being amortized over the legal life of the patents. |
INCOME TAXES | 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 2016 are subject to examination by income tax authorities. |
PROPERTY, EQUIPMENT, AND DEPRECIATION | 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 | STOCK-BASED COMPENSATION The Company maintains a stock option plan under which it grants stock options to certain executives, key employees and 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. |
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS | USE OF ESTIMATES IN THE FINANCIAL STATEMENTS The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Important estimates include but are not limited to, asset lives, valuation allowances, inventory, and accruals. |
REVENUE RECOGNITION | REVENUE RECOGNITION The 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 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 revenues result from the sale of assembled products. We recognize revenues when shipment occurs and at which point the customer obtains control and ownership of the goods. Shipping 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. |
LEASES | LEASES In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by the Company for those leases classified as operating leases under current U.S. GAAP, while our accounting for capital leases remains substantially unchanged. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard became effective for us January 1, 2019. The standard had a material impact on our balance sheets, but did not have a material impact on our income statements. See NOTE 7 LEASES. |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2016, the FASB issued ASU No. 2016-13—Financial Instruments – Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption. In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): 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 permitted upon issuance of this ASU. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective 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. |
FAIR VALUE OF FINANCIAL INSTRUMENTS | 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. |
ACCOUNTING FOR LONG-LIVED ASSETS | 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 September 30, 2019, the Company does not believe that any of its assets are impaired. |
RECLASSIFICATION | RECLASSIFICATION Certain reclassifications have been made to conform prior period data to the current presentation. These reclassifications had no effect on reported net income. |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property and equipment | Property and equipment consists of the following at: September 30, 2019 December 31, 2018 Land $ — $ 54,030 Building — 171,094 Furniture, office equipment, and leasehold improvements 1,120,416 1,058,507 Manufacturing equipment and tooling 1,309,172 1,279,865 2,429,588 2,563,496 Less: accumulated depreciation (1,792,660 ) (1,704,715 ) Property and equipment, net $ 636,928 $ 858,781 |
STOCK-BASED COMPENSATION (Table
STOCK-BASED COMPENSATION (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Share-based Payment Arrangement [Abstract] | |
Schedule of fair value of the stock options granted Black-Scholes option valuation model | 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. September 30, 2019 2018 Dividend yield 0.00% 0.00% Expected Volatility 56.1 – 60.7% 62.8 – 65.2% Weighted-average volatility — — Expected dividends — — Expected term (in years) 10 Years 5 Years Risk-free rate 1.60 – 2.72% 2.80 – 2.90% |
Schedule of stock option plan | The following table summarizes the status of the Plan with respect to time based stock options: Nine months Ended September 30, 2019 2018 Shares Weighted Shares Weighted Outstanding at January 1 2,419,000 $ 1.00 1,038,000 $ 0.41 Granted 1,650,000 $ 1.92 1,018,000 $ 1.23 Exercised 160,000 $ 0.37 125,000 $ 0.41 Forfeited 12,000 $ 0.87 12,000 $ 0.87 Outstanding at September 30 3,897,000 $ 1.41 1,919,000 $ 0.85 Options exercisable at September 30 1,037,885 $ 0.81 666,969 $ 0.40 Weighted average fair value of options granted during the period — $ 1.33 — $ 0.68 Stock-based compensation expense $ 473,139 — $ 51,592 |
Schedule of information pertaining to time based options outstanding | The following table presents information pertaining to options outstanding at September 30, 2019: Range of Exercise Price Number Weighted Weighted Number Weighted $ 0.38 – 3.15 3,897,000 7 years $ 1.41 1,037,885 $ 0.81 |
Schedule of performance base share 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. September 30, 2019 2018 Dividend yield 0.00% — Expected Volatility 58.9% — Weighted-average volatility — — Expected dividends — — Expected term (in years) 10 Years — Risk-free rate 2.07% — |
Schedule of performance base options outstanding | The following table summarizes the status of the Plan with respect to performance based stock options: Nine months Ended September 30, 2019 2018 Shares Weighted Shares Weighted Outstanding at January 1 — $ — — $ — Granted 1,000,000 $ 1.70 — $ — Exercised — $ — — $ — Forfeited — $ — — $ — Outstanding at September 30 1,000,000 $ 1.70 — $ — Options exercisable at September 30 — $ — — $ — Weighted average fair value of options granted during the period — $ 1.16 — $ — Stock-based compensation expense — $ 167,636 — $ — |
Schedule of information pertaining to performance base options outstanding | The following table presents information pertaining to performance based options outstanding at September 30, 2019: Range of Exercise Price Number Weighted Weighted Number Weighted $1.70 1,000,000 10 years $ 1.70 — $ — |
LEASES (Tables)
LEASES (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Leases [Abstract] | |
Schedule of components of lease expense | The components of lease expense were as follows: Three Months Ended Nine Months Ended Operating lease cost $ 37,922 $ 111,672 Finance lease cost: Amortization of right-of-use assets $ 1,061 $ 3,182 Interest on lease liabilities 47 178 Total finance lease cost $ 1,108 $ 3,360 |
Schedule of cash flow information related to leases | Supplemental cash flow information related to leases was as follows: Three Months Ended Nine Months Ended Cash paid for amounts included in the measurement of lease liabilities: Finance cash flows from finance leases $ 1,053 $ 3,122 Finance lease cost: Amortization of right-of-use assets $ 1,061 $ 3,182 Interest on lease liabilities 47 178 Total finance lease cost $ 1,108 $ 3,360 |
Schdeule of balance sheet information related to leases | Supplemental balance sheet information related to leases was as follows: Nine Months Ended Operating Leases Operating lease right-of-use assets $ 406,954 Operating lease current liabilities 135,275 Operating lease long term liabilities 271,679 Total operating lease liabilities $ 406,954 Finance Leases Property and equipment, at cost $ 6,363 Accumulated depreciation 3,182 Property and equipment, net $ 3,181 Finance lease current liabilities 3,242 Finance lease long term liabilities — Total finance lease liabilities $ 3,242 Nine Months Ended Weighted Average Remaining Lease Term Operating leases 3 Years Finance leases 1 Year Weighted Average Discount Rate Operating leases 4.75% Finance leases 4.75% |
Schedule of maturities of lease liabilities | Maturities of lease liabilities are as follows: Year Ending December 31, Operating Leases Finance Leases 2019 $ 37,922 $ 1,100 2020 151,685 2,206 2021 149,476 — 2022 97,256 — Total lease payments 436,339 3,306 Less imputed interest (29,385 ) (64 ) Total $ 406,954 $ 3,242 |
NATURE OF OPERATIONS AND SUMM_3
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) | 9 Months Ended | |
Sep. 30, 2019USD ($)Number | Sep. 24, 2019 | |
Number of segments | Number | 1 | |
FDIC cash uninsured amount | $ | $ 250,000 | |
Certificate of deposit, matured date | May 31, 2019 | |
Certificates Of Deposit [Member] | ||
Interest rate | 1.73% | |
Money Market Funds [Member] | ||
Interest rate | 2.25% | 1.85% |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details Narrative) - Lease Agreement [Member] - USD ($) | 3 Months Ended | 9 Months Ended | ||||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Mar. 01, 2019 | Feb. 28, 2019 | |
Aircraft [Member] | Mr. Andrew I. Sealfon [Member] | ||||||
Lease payments | $ 0 | $ 1,292 | $ 0 | $ 9,045 | ||
Building [Member] | Mr. Mark Pastreich [Member] | ||||||
Monthly lease payments | $ 12,088 | $ 11,042 | ||||
Lease payments | 36,264 | 33,126 | 106,700 | 99,378 | ||
Property taxes paid | $ 13,749 | $ 12,431 | $ 39,165 | $ 37,863 |
PROPERTY AND EQUIPMENT (Details
PROPERTY AND EQUIPMENT (Details) - USD ($) | Sep. 30, 2019 | Dec. 31, 2018 |
Property and equipment, gross | $ 2,429,588 | $ 2,563,496 |
Less: accumulated depreciation | (1,792,660) | (1,704,715) |
Property and equipment, net | 636,928 | 858,781 |
Manufacturing Equipment And Tooling [Member] | ||
Property and equipment, gross | 1,309,172 | 1,279,865 |
Land [Member] | ||
Property and equipment, gross | 54,030 | |
Furniture Office Equipment and Leasehold Improvements [Member] | ||
Property and equipment, gross | 1,120,416 | 1,058,507 |
Building [Member] | ||
Property and equipment, gross | $ 171,094 |
PROPERTY AND EQUIPMENT (Detai_2
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) | May 21, 2019 | Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 |
Property, Plant and Equipment [Abstract] | |||||
Depreciation expense | $ 69,740 | $ 68,991 | $ 218,328 | $ 202,975 | |
Sale of house owned | $ 200,000 |
LEGAL PROCEEDINGS (Details Narr
LEGAL PROCEEDINGS (Details Narrative) - EMED Technologies Corporation [Member] - USD ($) | Aug. 30, 2019 | Apr. 30, 2019 | Sep. 30, 2019 |
Past infringement damages amount | $ 1,500,000 | ||
Properly damages amount | $ 100,000 | ||
Bill of Costs | $ 1,500 | $ 16,000 | |
Legal fees | $ 1,160,000 | $ 2,300,000 |
STOCK-BASED COMPENSATION (Detai
STOCK-BASED COMPENSATION (Details) - Time Based Shares Options [Member] - 2015 Stock Option Plan [Member] - USD ($) | 9 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | |
Dividend yield | 0.00% | 0.00% |
Expected Volatility | ||
Weighted-average volatility | ||
Expected dividends | ||
Expected term (in years) | 10 years | 5 years |
Risk-free rate | ||
Minimum [Member] | ||
Expected Volatility | 56.10% | 62.80% |
Risk-free rate | 1.60% | 2.80% |
Maximum [Member] | ||
Expected Volatility | 60.70% | 65.20% |
Risk-free rate | 2.72% | 2.90% |
STOCK-BASED COMPENSATION (Det_2
STOCK-BASED COMPENSATION (Details 1) - Time Based Shares Options [Member] - 2015 Stock Option Plan [Member] - USD ($) | 9 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | ||
Outstanding at beginning | 2,419,000 | 1,038,000 |
Granted | 1,650,000 | 1,018,000 |
Exercised | 160,000 | 125,000 |
Forfeited | 12,000 | 12,000 |
Outstanding at ending | 3,897,000 | 1,919,000 |
Options exercisable at ending | 1,037,885 | 666,969 |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward] | ||
Outstanding at beginning | $ 1 | $ 0.41 |
Granted | 1.92 | 1.23 |
Exercised | 0.37 | 0.41 |
Forfeited | 0.87 | 0.87 |
Outstanding at ending | 1.41 | 0.85 |
Options exercisable at ending | 0.81 | 0.40 |
Weighted average fair value of options granted during the period | $ 1.33 | $ 0.68 |
Stock-based compensation expense | $ 473,139 | $ 51,592 |
STOCK-BASED COMPENSATION (Det_3
STOCK-BASED COMPENSATION (Details 2) - Time Based Shares Options [Member] - 2015 Stock Option Plan [Member] - $ 0.38 - 3.15 [Member] | 9 Months Ended |
Sep. 30, 2019$ / sharesshares | |
Number Outstanding | shares | 3,897,000 |
Weighted Average Remaining Contractual Term | 7 years |
Weighted Average Exercise Price | $ / shares | $ 1.41 |
Number Exercisable | shares | 1,037,885 |
Weighted Average Exercise Price | $ / shares | $ 0.81 |
STOCK-BASED COMPENSATION (Det_4
STOCK-BASED COMPENSATION (Details 3) - Performance Based Share Options [Member] - 2015 Stock Option Plan [Member] - USD ($) | 9 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | |
Dividend yield | 0.00% | |
Expected Volatility | 58.90% | |
Weighted-average volatility | ||
Expected dividends | ||
Expected term (in years) | 10 years | |
Risk-free rate | 2.07% |
STOCK-BASED COMPENSATION (Det_5
STOCK-BASED COMPENSATION (Details 4) - Performance Based Share Options [Member] - 2015 Stock Option Plan [Member] - USD ($) | 9 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward] | ||
Outstanding at beginning | ||
Granted | 1,000,000 | |
Exercised | ||
Forfeited | ||
Outstanding at ending | 1,000,000 | |
Options exercisable at ending | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward] | ||
Outstanding at beginning | ||
Granted | 1.70 | |
Exercised | ||
Forfeited | ||
Outstanding at ending | 1.70 | |
Options exercisable at ending | ||
Weighted average fair value of options granted during the period | $ 1.16 | |
Stock-based compensation expense | $ 167,636 |
STOCK-BASED COMPENSATION (Det_6
STOCK-BASED COMPENSATION (Details 5) - Performance Based Share Options [Member] - 2015 Stock Option Plan [Member] - $1.70 [Member] | 9 Months Ended |
Sep. 30, 2019$ / sharesshares | |
Number Outstanding | shares | 1,000,000 |
Weighted Average Remaining Contractual Term | 10 years |
Weighted Average Exercise Price | $ / shares | $ 1.70 |
Number Exercisable | shares | |
Weighted Average Exercise Price | $ / shares |
STOCK-BASED COMPENSATION (Det_7
STOCK-BASED COMPENSATION (Details Narrative) - USD ($) | Apr. 02, 2019 | Feb. 20, 2019 | Feb. 02, 2019 | Jan. 02, 2019 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | Dec. 31, 2017 |
Independent Directors [Member] | ||||||||
Description of payment terms | Paid quarterly half in cash and half in common stock | |||||||
Annual compensation paid per director | $ 25,000 | $ 50,000 | ||||||
Annual additional compensation per board committee chair | $ 10,000 | |||||||
Chief Executive Officer, Mr. Goldberger [Member] | Employment Agreement [Member] | ||||||||
Number of shares authorized to employees | 90,604 | |||||||
Description of payment terms | a performance bonus in the amount of $270,000 to be paid half in cash and half in stock | |||||||
2015 Stock Option Plan [Member] | Key Employees [Member] | ||||||||
Number of common shares awarded | 1,650,000 | |||||||
Performance Based Share Options [Member] | 2015 Stock Option Plan [Member] | ||||||||
Number of common shares awarded | 1,000,000 | |||||||
Weighted average grant date fair value of stock options | $ 1.16 | |||||||
Allocated stock-based compensation expense | $ 167,636 | |||||||
Total unrecognized compensation cost | $ 994,925 | |||||||
Weighted-average period (in years) | 31 months | |||||||
Total fair value of shares vested | $ 0 | $ 0 | ||||||
Number of options outstanding | 1,000,000 | |||||||
Time Based Shares Options [Member] | 2015 Stock Option Plan [Member] | ||||||||
Number of common shares awarded | 1,650,000 | 1,018,000 | ||||||
Weighted average grant date fair value of stock options | $ 1.33 | $ 0.68 | ||||||
Allocated stock-based compensation expense | $ 473,139 | $ 51,592 | ||||||
Total unrecognized compensation cost | $ 2,802,411 | |||||||
Weighted-average period (in years) | 42 months | |||||||
Total fair value of shares vested | $ 506,729 | $ 139,569 | ||||||
Number of options outstanding | 3,897,000 | 1,919,000 | 2,419,000 | 1,038,000 | ||||
Cash received from option exercises | $ 58,900 | $ 51,250 | ||||||
Total intrinsic value of options exercised | $ 30,022 | $ 30,664 |
DEBT OBLIGATIONS (Details Narra
DEBT OBLIGATIONS (Details Narrative) | Feb. 08, 2018USD ($) |
Description of interest rate | Interest rate of LIBOR plus 2.25%, collateralized with a certificate of deposit in the amount of $1.5 million. Collateralization was released on Sep. 25, 2018. |
Line Of Credit [Member] | Key Bank National Association [Member] | |
Promissory note amount | $ 1,500,000 |
LEASES (Details)
LEASES (Details) - USD ($) | 3 Months Ended | 9 Months Ended |
Sep. 30, 2019 | Sep. 30, 2019 | |
Leases [Abstract] | ||
Operating lease cost | $ 37,922 | $ 111,672 |
Finance lease cost: | ||
Amortization of right-of-use assets | 1,061 | 3,182 |
Interest on lease liabilities | 47 | 178 |
Total finance lease cost | $ 1,108 | $ 3,360 |
LEASES (Details 1)
LEASES (Details 1) - USD ($) | 3 Months Ended | 9 Months Ended |
Sep. 30, 2019 | Sep. 30, 2019 | |
Cash paid for amounts included in the measurement of lease liabilities: | ||
Finance cash flows from finance leases | $ 1,053 | $ 3,122 |
Amortization of right-of-use assets | 1,061 | 3,182 |
Interest on lease liabilities | 47 | 178 |
Total finance lease cost | $ 1,108 | $ 3,360 |
LEASES (Details 2)
LEASES (Details 2) | Sep. 30, 2019USD ($) |
Operating Leases | |
Operating lease right-of-use assets | $ 406,954 |
Operating lease current liabilities | 135,275 |
Operating lease long term liabilities | 271,679 |
Total operating lease liabilities | 406,954 |
Finance Leases | |
Property and equipment, at cost | 6,363 |
Accumulated depreciation | 3,182 |
Property and equipment, net | 3,181 |
Finance lease current liabilities | 3,242 |
Total finance lease liabilities | $ 3,242 |
LEASES (Details 3)
LEASES (Details 3) | Sep. 30, 2019 |
Weighted Average Remaining Lease Term | |
Operating leases | 3 years |
Finance leases | 1 year |
Weighted Average Discount Rate | |
Operating leases | 4.75% |
Finance leases | 4.75% |
LEASES (Details 4)
LEASES (Details 4) | Sep. 30, 2019USD ($) |
Operating leases | |
2019 | $ 37,922 |
2020 | 151,685 |
2021 | 149,476 |
2022 | 97,256 |
Total lease payments | 436,339 |
Less imputed interest | (29,385) |
Total operating lease liabilities | 406,954 |
Financing leases | |
2019 | 1,100 |
2020 | 2,206 |
2021 | |
2022 | |
Total lease payment | 3,306 |
Less imputed interest | (64) |
Total finance lease liabilities | $ 3,242 |
LEASES (Details Narrative)
LEASES (Details Narrative) | Sep. 30, 2019 |
Maximum [Member] | |
Operating lease, renewal term | 3 years |
Minimum [Member] | |
Operating lease, renewal term | 1 year |
SUBSEQUENT EVENTS (Details Narr
SUBSEQUENT EVENTS (Details Narrative) | 9 Months Ended |
Sep. 30, 2019USD ($) | |
Mr Fletcher [Member] | |
Additional Annual Compensation | $ 50,000 |