Business context and reporting period
This is Repro Med Systems, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2019. The filing describes a single-segment business that designs, manufactures, and markets medical devices, primarily for ambulatory infusion. The request identifies KORU Medical Systems, Inc.; the filing itself names Repro Med Systems, Inc.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net sales | $4.974 million | $4.033 million |
| Gross profit / margin | $3.048 million / 61.3% | $2.466 million / 61.1% |
| Operating income (loss) | $(115,039) | $501,129 |
| Net income (loss) | $(85,390) | $403,427 |
| Operating cash flow | $(1.045) million | $(13,114) |
| Investing cash flow | $(96,833) | $71,733 |
- Sales increased 23.3%; domestic sales rose 15.1% and international sales 65.8%. Management attributed growth mainly to needle sales and fulfillment of $0.2 million in year-end open orders.
- Gross margin was broadly stable. Selling, general and administrative expense increased 58.3% to $2.977 million; research and development expense rose to $101,959 from $9,848.
- Cash and cash equivalents were $2.593 million at quarter-end, down from $3.739 million at year-end. The company also held a $1.524 million certificate of deposit maturing in May 2019.
- Current assets were $9.568 million and current liabilities $2.027 million. There were no borrowings outstanding on the $1.5 million revolving credit line. Lease liabilities totaled $477,559, including $472,224 in operating leases and $5,335 in finance leases.
- Basic and diluted loss per share were each reported as $0.00, rounded. Adjusted EBITDA, a non-GAAP measure, was $927,998 versus $840,665; normalized net income was $680,370 versus $605,299. Both measures exclude significant expenses and should be considered alongside GAAP results.
Material changes and management commentary
Despite record quarterly sales, the company moved from net income to a loss as operating expenses outpaced gross-profit growth. Management cited approximately $0.5 million of litigation and registration-related legal costs, approximately $0.5 million of higher executive salaries and benefits, a $0.3 million performance bonus to the former interim CEO, added medical-affairs staffing, and higher investor-relations and director costs. Research and development spending also increased with additional headcount and product-development initiatives.
Operating cash use was driven principally by a $1.229 million increase in receivables, partly reflecting a major customer’s move from net 30- to net 60-day terms, and a $405,000 inventory build. Management stated that cash on hand and expected operating cash generation should fund operations, research and development, and capital expenditures for the next 12 months.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management pointed to continued opportunity in the subcutaneous immunoglobulin market and neurology, including the expanded Hizentra indication for CIDP.
- Multiple lawsuits with competitor EMED involve patent-infringement allegations and other claims. A Texas trial concerning a remaining patent claim was scheduled for August 19, 2019; a separate matter was expected to proceed to trial in 2020. Damages sought were unspecified, and the company warned an adverse outcome could materially affect its business and finances.
- Lease accounting adopted January 1, 2019 materially increased reported balance-sheet assets and liabilities but did not materially affect the income statement.
- The company increased annual non-employee director compensation and granted 1.05 million options during the quarter; 3.469 million options were outstanding at March 31. A proposed increase in plan authorization to 6 million shares was subject to shareholder approval.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing reported no material changes to the risk factors in the 2018 annual report.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for Repro Med Systems, Inc., while the request names KORU Medical Systems, Inc.
- Track collections and customer payment timing, since receivables growth was the largest operating-cash outflow driver.
- Assess whether sales growth can be sustained and translated into operating profit as legal, executive, and product-development costs continue.
- Monitor the EMED litigation schedule, potential exposure, and ongoing legal expense; the filing gives no clear estimate of possible damages.
- Review equity dilution from option grants, director stock compensation, and the proposed expansion of the stock plan.
- Note that the filing’s cash-flow statement reports $298,125 of stock-based compensation adjustments, while the stock-compensation note and non-GAAP reconciliation report $121,875 for the quarter; the difference is not clearly explained in the provided filing text.