KORU Medical Systems, Inc. (Repro Med Systems, Inc.) — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company designs, manufactures and markets portable medical devices primarily for ambulatory infusion, including products used to deliver subcutaneous immunoglobulin therapies. Figures are in U.S. dollars unless stated otherwise.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $6.04 million | $6.08 million | $17.00 million | $20.12 million |
| Gross profit / margin | $3.50 million / 57.9% | $3.94 million / 64.8% | $9.94 million / 58.5% | $12.64 million / 62.8% |
| Net income (loss) | ($1.09 million) | $0.25 million | ($3.49 million) | ($0.38 million) |
| Basic and diluted EPS | ($0.02) | $0.01 | ($0.08) | ($0.01) |
| Operating cash flow | Not presented quarterly | ($3.60 million) | $0.97 million |
- At September 30, cash and cash equivalents were $26.23 million, versus $27.32 million at December 31, 2020. Current assets were $37.66 million and current liabilities $4.56 million.
- Total assets were $41.36 million and stockholders’ equity was $36.80 million. Total liabilities were $4.56 million, including a $673,133 current note payable related to insurance-premium financing. The company reported no balance drawn on its $3.5 million KeyBank revolving line of credit.
- Nine-month investing cash outflow was $0.32 million; financing cash inflow was $2.84 million. Cash declined $1.08 million over the nine months.
Changes versus comparable periods
- Q3 sales declined 0.7% year over year; management noted that Q3 2020 included approximately $0.6 million of inventory-stocking sales. Sales increased 9% sequentially from Q2 2021, driven by 10% domestic core growth.
- Nine-month sales fell 15.5%. Domestic core sales declined 10.4%, and domestic novel-therapy sales declined 84.9%, primarily reflecting a prior-year nonrecurring clinical trial and an early order/inventory stocking by the largest distributor. International core sales grew 1.8% for the nine-month period.
- Gross margin fell 6.9 percentage points in Q3 and 4.3 points for the nine-month period. Management cited delays transitioning to a secondary manufacturing source and, for Q3, a reserve for in-process material scrap. Price/mix partly offset the quarterly pressure; lower pump sales weighed on the nine-month comparison.
- Q3 operating expenses rose 34.5% overall, including 26.9% higher selling, general and administrative expenses and 104.9% higher R&D. For nine months, SG&A rose 43.6% and R&D rose 61.3%; litigation expense fell by $2.45 million from the prior-year period following settlement of litigation.
Outlook, commentary and risks
- The filing gives no quantified revenue, earnings, or margin guidance. Management said the company was expanding its pharmaceutical pipeline and investing in commercialization, regulatory filings, and product development.
- Management cautioned that COVID-19 may affect demand, including new patient prescriptions, and cited limited availability and rising costs of raw materials and labor. Other disclosed risks include customer ordering patterns, inventory conversion to cash, product acceptance and competition, FDA and foreign regulatory matters, reimbursement, and access to capital.
- The company recorded a Q3 scrap reserve and said delayed transition to the secondary manufacturing source adversely affected margins. Management also identified expired-sample disposal as an expense driver.
- The company had no legal proceeding it believed material to its financial condition. Its five-year manufacturing and supply agreement with Command Medical Products includes an early-termination fee in specified circumstances during the first three years.
- Stock-based compensation was a significant noncash expense: $1.97 million for the first nine months. The CEO received awards covering 1.0 million restricted shares, with vesting subject to continued employment; $2.38 million of related compensation cost remained unrecognized at September 30.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing states that no material risk-factor changes had occurred since the 2020 Form 10-K.
Investor verification points
- Track whether domestic core demand and new patient starts recover, and distinguish underlying growth from prior-year stocking and clinical-trial comparisons.
- Verify progress, costs, and timing of the secondary-source manufacturing transition, and whether scrap or other production issues continue to pressure gross margin.
- Monitor operating cash burn, inventory and receivables, and the company’s ability to convert inventory into cash.
- Confirm the insurance-financing note repayment schedule and whether the KeyBank revolver remains undrawn.
- Assess whether higher SG&A and R&D spending produces expected commercialization, regulatory, and novel-therapy progress, while accounting for ongoing equity compensation and dilution.