KORU Medical Systems, Inc. (filed as Repro Med Systems, Inc.) — Form 10-Q summary
Reporting period: Quarter ended June 30, 2017. The company changed its fiscal year-end from February 28 to December 31, making this a transitional four-month reporting period: March 2017 plus the April–June quarter. The filing compares the three-month quarter and the four-month period with the corresponding 2016 periods; results are not necessarily indicative of full-year performance.
Financial results
| Metric | Three months ended June 30, 2017 | Three months ended June 30, 2016 | Four months ended June 30, 2017 | Four months ended June 30, 2016 |
|---|---|---|---|---|
| Net sales | $3.829 million | $2.796 million | $5.339 million | $4.072 million |
| Gross profit | $2.297 million | $1.787 million | $3.270 million | $2.617 million |
| Gross margin | 60.0% | 63.9% | 61.2% | 64.3% |
| Operating profit (loss) | $190,342 | $(461,458) | $491,983 | $(324,891) |
| Net income (loss) | $148,472 | $(320,212) | $360,833 | $(205,882) |
- Four-month sales grew 31.1% year over year; management said growth was 21.6% excluding $0.4 million of February 28, 2017 backorders fulfilled during the period.
- Domestic four-month sales increased 29.4% to $4.255 million; international sales increased 38.2% to $1.084 million.
- Four-month operating expenses were $2.778 million, down from $2.942 million. SG&A declined 4.7% and R&D declined 54.5%, with R&D reduction primarily attributed to attrition.
- The four-month net result included a $54,659 foreign-exchange gain. Higher production costs, including inspection scrap, sterilization, shipping, overtime, and a second shift, weighed on gross margin.
Liquidity, cash flow, and balance sheet
- At June 30, 2017, cash and cash equivalents were $2.983 million and certificates of deposit were $262,315. Current assets were $6.641 million versus current liabilities of $869,075; total liabilities were $979,210.
- The balance sheet reports no borrowings; the filing does not identify interest-bearing debt. Stockholders’ equity was $7.025 million.
- For the four months, operating cash flow was negative $236,636, investing cash flow was negative $74,761, and financing cash flow was negative $19,360. Cash declined $330,757 from February 28.
- Operating cash use reflected a $392,592 increase in receivables and a $493,297 decrease in accounts payable, partly offset by net income and other working-capital movements.
- Management stated that cash on hand and expected operating cash generation should fund operations, R&D, and capital expenditures for the next 12 months.
Management commentary, outlook, and material risks
- Management cited organic domestic and international growth, new-country registrations, a European flow-controller launch, clinical trials with drug companies, and expanded marketing. Two large pump orders were accelerated into the period; prior-year sales included a large product return related to a market withdrawal.
- The company plans to continue focusing on global sales, cost control, and product development, and is seeking a larger facility. Management expects additional occupancy, construction, and FDA-compliance costs; there is no assurance a suitable location will be secured before the current lease expires.
- The FDA acknowledged in May 2017 that the company had addressed the quality and regulatory issues cited in its Warning Letter. Closure remained contingent on FDA review of a pending 510(k) submission; the company received questions on June 30 and was working to respond. Management cautioned that FDA actions could still adversely affect the business.
- Patent litigation with EMED remained ongoing. The PTAB had invalidated claims asserted in one case, which EMED appealed; other proceedings and motions remained unresolved. The company said adverse outcomes could materially harm its business, results, financial condition, and cash flows.
- Other disclosed risks include product demand and market acceptance, reimbursement, competition, regulation, ability to raise capital, key-personnel dependence, and successful product development. No quantified financial guidance was provided.
- The company paused open-market repurchases indefinitely to preserve cash for capital investment. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Confirm the reported registrant identity: this filing names Repro Med Systems, Inc.; the company name supplied in the request is KORU Medical Systems, Inc.
- Assess the sustainability and quality of sales growth, including the effects of backorder fulfillment, accelerated pump orders, and the prior-year product return.
- Track gross-margin recovery and production costs, and whether lower SG&A and R&D spending can be sustained without limiting growth or compliance efforts.
- Monitor operating cash conversion, receivables and payables, and planned spending for the facility move and production expansion.
- Follow the pending 510(k), FDA Warning Letter closure, EMED litigation and appeal, and potential related costs or business restrictions.