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 20 years. The leaseback is accounted for as an operating lease. The gain of $449,617 realized in this transaction has been deferred and is amortized to income in proportion to rental expense over the term of the related lease.
Rent expense for the years ended February 28, 2013 and February 29, 2012 aggregated $132,504.
The provision for income taxes consisted of at February 28, 2013 and February 29, 2012:
The Company had operating loss carry forwards, all of which were fully utilized by February 29, 2012.
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:
The components of deferred tax liabilities at February 28, 2013 and February 29, 2012, respectively, are as follows:
Deferred compensation cost
Depreciation and amortization
Deferred tax liabilities
For the year ended February 28, 2013, approximately, 27.4% and 12.2% of the Company’s revenue were derived from two major customers. At February 28, 2013, accounts receivable due from these customers were $366,890 and $82,368, respectively.
For the year ended February 29, 2012, approximately, 19.2% and 17.6% of the Company’s revenue were derived from two major customers. At February 29, 2012, accounts receivable due from these customers were $160,470 and $98,185, respectively.
The largest customer in both years is a medical products and supplies distributor. Although a number of larger FREEDOM60(R) users 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 purchases of FREEDOM60 pumps, tubing, needle sets and related supplies is contingent upon the distributor.
The FDA cleared a 510(k) on May 6, 2013 for enhancements to the RMS Subcutaneous Safety Needle Sets which included formally recognizing our clinical studies to support the Safety Needle claim, additional lengths of 4mm and 14mm, use for greater than 24 hours, non-pyrogenic claims, the use of up to eight sites and the 24 gauge needle.
The Director loan with a balance of $437,832 as of February 28, 2013 was fully paid on May 17, 2013 as we concluded that the cash on hand was not earning the cost of the interest.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On October 20, 2011 McGrail Merkel Quinn & Associates, P.C., was dismissed as REPRO-MED SYSTEMS, INC.’s (the “Company”) independent registered public accounting firm, as approved by the Board of Directors. McGrail Merkel Quinn & Associates, P.C.’s, report on the Company’s financial statements for the two fiscal years ended February 28, 2011 and 2010 did not contain an adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended February 28, 2011 and 2010, as well as the interim period preceding the dismissal of McGrail Merkel Quinn & Associates, P.C., there were no disagreements or reportable events of the kind described in Item 304(a)(1)(v) of Regulation S-K of the Securities and Exchange Commission (the “Commission”) between the Company and McGrail Merkel Quinn & Associates, P.C., on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to the satisfaction of McGrail Merkel Quinn & Associates, P.C., would have caused McGrail Merkel Quinn & Associates, P.C., to make a reference to the subject matter of the disagreement or reportable event in connection with the issuance of its audit reports.
On October 20, 2011, the Board of Directors of REPRO-MED SYSTEMS, INC. approved the engagement of Radin, Glass & Co., LLP as the Company’s independent registered public accounting firm for the year ending February 29, 2012. Radin Glass & Co., LLP’s engagement as the Company’s independent registered public accounting firm commenced on October 20, 2011.
During the years ended February 28, 2010 and February 28, 2011, and through October 20, 2011, neither the Company nor anyone on its behalf has consulted with Radin Glass & Co., LLP with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that Radin Glass & Co., LLP concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
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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 Exchange Act) as of February 28, 2013. Based on that evaluation, our management, including our CEO and CFO, concluded that 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, 2013. 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 Organization of the Treadway Commission (COSO). Based on this assessment, management determined that, as of February 28, 2013, the Company maintained effective internal control over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Act that permits the Company to provide only management’s report in the annual report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal year ended February 28, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The following table sets forth-certain information with respect to the Executive Officers and Directors:
Position / Held Since
Andrew I. Sealfon
Michael R. Boscher
Paul Mark Baker
Mr. 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 shareholders or until their successors are elected. Executive Officers hold office at the discretion of the Board of Directors.
Mr. Sealfon co-founded REPRO-MED SYSTEMS, INC., in 1980. He is an electrical engineer and inventor and has been granted numerous United States patents. Mr. Sealfon is a graduate of Lafayette College.
Mr. Boscher, master in business administration from Durham University, United Kingdom, joined the company in 2011 as director of operations. Effective February 2012, he is Treasurer and Chief Financial Officer.
Dr. Baker earned a medical degree from Cornell University Medical College. He is a practicing pediatrician and is attending at Department of Pediatrics Horton Memorial Hospital, Middletown, New York, and attending at New York Hospital-Cornell Medical Center in New York City. Dr. Baker assisted us in the development of the RES-Q-VAC(R) Suction System. In addition, Dr. Baker has published results of use of the RES-Q-VAC(R) in a letter to LANCET, a medical journal.
Mr. Spagnoli is a principal founder and past President and Chairman of CRS, Inc., Newburgh, NY, a manufacturer of proprietary inventory control and point of sale software and distributor of computer equipment.
Mr. Pastreich is a businessman, and a longtime real estate investor and broker. He has served on numerous for-profit and not-for-profit boards. Among his other various real estate holdings, he is presently a partner in Casper Creek LLC, which owns the building leased by REPRO-MED SYSTEMS, INC.
ITEM 11. EXECUTIVE COMPENSATION
Andrew I. Sealfon, President, received $304,166 in salary, $348,218 in bonus and a restricted stock grant valued at $180,000 for a total compensation of $832,384 during the fiscal year ended February 28, 2013. The bonus payments were awarded by the Board of Directors for exceptional performance in recent years and intended to cover taxes on stock options and grants. The restricted stock vests over a two-year period.
Mike R. Boscher, CFO, received $178,288 in salary, bonus and restricted stock awards from Repro-Med during the fiscal year ended February 28, 2013.
The officers are reimbursed for travel and other expenses incurred on behalf of REPRO-MED SYSTEMS, INC. We do not have pension or profit sharing plans, but do offer an optional 401(k) savings plan with a company matching component to all full-time employees with 90 days of service.
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Name & Position
Andrew I. Sealfon, President & CEO
Michael R. Boscher, Treasurer & CFO
* Other compensation for Mr. Sealfon includes car allowance (not itemized here).
Table of aggregate options exercised during the fiscal year ended February, 2012 and option values at year-end February 2012:
Name of Individual
A. I. Sealfon
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 29, 2013, the number of shares of Common Stock beneficially owned by each person owning more than 5% of the outstanding shares, by each officer and director, and by all officers and directors as a group:
Name of Principal Shareholders and Identity of Group
Number of Shares Owned
Percent of Class
Andrew I. Sealfon*
Dr. Paul Mark Baker
Mike R. Boscher
All Directors and Officers as a Group
*Andrew I. Sealfon is deemed a “parent” and a “promoter” of REPRO-MED SYSTEMS, INC., as those terms are defined under the Securities Act of 1933, as amended.
(1) Does not include 690,000 shares of common stock owned by members of Mr. Sealfon’s family, as to which Mr. Sealfon disclaims beneficial ownership.
(2) Includes beneficial shares owned by Andrea Baker.
Certain shares and/or options, which have been disclosed above, were issued to officers, directors, or 10% shareholders. The Company has reminded each of said directors to file an SEC Form 3, 4, or 5 as applicable, with respect to such stock issuances or option grants.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To reduce corporate travel expenses, we maintain and operate a corporate aircraft. Since 1992, the aircraft has been leased from AMI Aviation, Inc. Mr. Sealfon is a majority shareholder in AMI Aviation. The lease expenses paid were $21,500 in each of 2013 and 2012. We believe the AMI lease is on terms competitive with those that could be obtained from unaffiliated third parties.
In February 2009, the Company borrowed $672,663 from a Director of the company, at 6% interest per annum. In June 2009, 755,000 shares of stock were issued to the director at $0.11 per share to reduce the debt. The remaining debt matures in February 2021.
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 REPRO-MED SYSTEMS, INC. The Company is in year fourteen 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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of the fees billed to us by Radin, Glass & Co., LLP, an independent registered public accounting firm, for professional services rendered for the fiscal years ended February 28, 2013 and February 29, 2012, respectively.
Fiscal 2013 Fees
Fiscal 2012 Fees
Audit Fees (1)
Tax Returns & Consulting Services
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, 2013 and February 29, 2012, 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 shown above were pre-approved by the Board of Directors.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements - The following financial statements are incorporated by reference in Part II, Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Statements of Operations
Statements of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
Financial Statement Schedules - The Financial Statement Schedules are incorporated by reference in Part II, Item 8 hereof.
The following exhibits are filed herewith or incorporated by reference as part of this Annual Report.
Articles of Incorporation, by reference from the Regulation and Offering Statement of REPRO-MED SYSTEMS, INC., dated November 12, 1982 (previously filed and incorporated by reference).
By-Laws, by reference from the Annual Report on Form10-K of REPRO-MED SYSTEMS, INC., for the fiscal year ended February 1987 (previously filed and incorporated by reference).
Acknowledgement of Receipt and Understanding of Code of Ethics for Officers, Directors, and Employees of REPRO-MED SYSTEMS, INC., and Federal Securities Law Prohibitions as to use of Insider Information (previously filed and incorporated by reference).
Code of Ethics for Officers, Directors, and Employees of REPRO-MED SYSTEMS, INC. (previously filed and incorporated by reference).
Federal Securities Law Considerations for Management of REPRO-MED SYSTEMS, INC. (previously filed and incorporated by reference).
Certification of the Principal Executive Officer of registrant required under Section 302of the Sarbanes-Oxley Act of 2002, filed herewith.
Certification of the Treasurer and Chief Financial Officer of registrant required under Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
Certification of the Principal Executive Officer of registrant required under Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
Certification of the Treasurer and Chief Financial Officer of registrant required under Section 906 of the Sarbanes-Oxley Act of 202, filed herewith.
Interactive Data File (Annual Report on Form 10-K, for the fiscal year ended February 28, 2013), furnished in XBRL (eXtensible Business Reporting Language).
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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 29, 2013.
REPRO-MED SYSTEMS, INC.
/s/ Andrew I. Sealfon
Andrew I. Sealfon, President
/s/ Michael R. Boscher
Michael R. Boscher, Treasurer & CFO
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 29, 2013.
/s/ Andrew I. Sealfon
Andrew I. Sealfon, President, Chairman of the Board, Director, and Principal Executive Officer
/s/ Dr. Paul Mark Baker
Dr. Paul Mark Baker, Director
/s/ Remo Spagnoli
Remo Spagnoli, Director
/s/ Mark Pastreich
Mark Pastreich, Director
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