Business context and reporting period
This 10-K is for Repro-Med Systems, Inc. (also identified as RMS Medical Products), for the fiscal year ended February 28, 2013, compared with the year ended February 29, 2012. The filing does not identify the registrant as KORU Medical Systems; investors should verify the entity and any subsequent name or corporate changes.
The company designs and sells medical devices, principally the FREEDOM60 syringe infusion system and related disposables, and the RES-Q-VAC portable suction system. Infusion therapy represented 90.0% of FY2013 sales, versus 86.4% in FY2012.
Key financial metrics
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $7.764 million | $6.391 million |
| Gross profit margin | 63.7% | 64.8% |
| Net operating profit | $1.062 million | $1.289 million |
| Net income | $725,763 | $815,893 |
| Basic and diluted earnings per share | $0.02 | $0.02 |
| Cash provided by operations | $784,790 | $560,601 |
| Capital expenditures | $563,567 | $236,235 |
At February 28, 2013, cash and cash equivalents were $1.930 million, certificates of deposit were $257,009, and current assets were $4.633 million against current liabilities of $525,359. Working capital was approximately $4.108 million. Total liabilities were $1.236 million, including approximately $439,306 of notes payable, primarily debt owed to a director. The company reported shareholders’ equity of $4.357 million.
Material changes versus the prior year
- Sales increased 21.5%. FREEDOM60 gross sales rose 29.7%, from $5.333 million to $6.918 million, driven by immune globulin, antibiotics, and HIgH-Flo needle-set sales. RES-Q-VAC sales declined 6.3%, to $753,000, with international sales continuing to weaken.
- Net income declined 11.0% despite higher sales. SG&A rose 33.4% to $3.544 million, including a 66% increase in sales and marketing investment and added sales-management hires. Research and development expense rose 63.4% to $147,576.
- Gross margin fell 1.1 percentage points as raw-material and production costs increased. Cost of goods sold included a $129,594 write-down of slow-moving inventory and the company’s absorption of the 2.3% medical-device excise tax, effective January 1, 2013.
- Operating cash flow increased by $224,189, while capital spending more than doubled. Investments included an ERP system, manufacturing and R&D equipment, and an adjacent residence acquired for office and R&D use.
- Accounts receivable increased to $1.115 million from $884,727. Two customers accounted for approximately 27.4% and 12.2% of FY2013 revenue, respectively.
Outlook, risks, and notable items
Management expected growth in the subcutaneous immune globulin market and anticipated further FREEDOM60 sales and product enhancements. It stated that available capital and increased sales should meet or exceed liquidity needs for the next 12 months. The filing provides no quantified revenue or earnings guidance.
- Key risks identified include reimbursement-policy changes, competition, FDA and other regulatory requirements, market acceptance, patent enforcement, access to capital, and dependence on key personnel. Management also highlighted uncertainty around healthcare reimbursement and the medical-device excise tax.
- On May 6, 2013, the FDA cleared a 510(k) for enhancements to the HIgH-Flo subcutaneous safety needle sets. On May 17, 2013, the company repaid the director loan, whose balance was $437,832 at fiscal year-end.
- The company disclosed a potential patent infringement issue involving competing FREEDOM60 tubing and said it was reviewing options, including litigation. It also warned customers about safety risks from non-company accessories.
- Andrew Sealfon was a key-person dependency and received total FY2013 compensation of $832,384, including bonus and restricted stock. The company reported that a $3.1 million key-person life policy was bound after year-end.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Confirm the registrant’s identity and corporate history, given the filing’s Repro-Med Systems name and the request’s KORU Medical Systems label.
- Assess whether FREEDOM60 and HIgH-Flo growth can continue and whether higher selling costs and input costs will pressure margins.
- Review customer concentration, reimbursement exposure, the effect of the medical-device excise tax, and the status of the competing-tubing patent matter.
- Confirm the post-year-end repayment of the director loan and assess liquidity after the substantial FY2013 capital investment.