KORU Medical Systems, Inc. (as identified in request) — Filing summary
Registrant and period: The supplied 10-Q is filed under the name Repro Med Systems, Inc. (RMS), not KORU Medical Systems, Inc. It reports the quarter ended May 31, 2016, compared with the quarter ended May 31, 2015; balance-sheet figures are compared with February 29, 2016. The filing describes RMS as a medical-device designer and manufacturer focused on ambulatory infusion and emergency medical products.
Financial performance and position
| Metric | Three months ended May 31, 2016 | Comparable 2015 period |
|---|---|---|
| Net sales | $2.990 million | $2.631 million |
| Gross profit / gross margin | $1.937 million / 64.8% | $1.518 million / 57.7% |
| Operating expenses | $2.306 million | $1.597 million |
| Operating loss | $369,602 | $78,864 |
| Net loss | $233,314 | $64,640 |
| Net loss per share | $0.01 | Reported as zero |
| Operating cash flow | $(262,181) | $11,101 |
| Investing cash flow | $(78,015) | $(97,700) |
- Domestic sales rose 18.9% to $2.467 million; international sales declined 5.7% to $523,215. Infusion products, including FREEDOM60 and HIgH-Flo needle sets, drove growth. Management cited new customers and an adoption by a large home-care hospital system for antibiotic therapy.
- SG&A rose 47.4% to $2.180 million, principally due to professional and consulting fees, recruiting, and sales travel. R&D increased 5.6% to $56,668.
- Cash and cash equivalents were $3.861 million at May 31, 2016, with certificates of deposit of $261,118. Cash declined $341,301 during the quarter. Current assets were $7.051 million and current liabilities $1.245 million. Total liabilities were $1.393 million; the balance sheet reports no interest-bearing debt.
- Quarter-end inventory was $1.124 million. Accounts payable rose to $608,167 from $307,764, while cash flow benefited from a $300,402 increase in accounts payable.
- The filing’s non-GAAP presentation reports normalized EBITDA of $335,085 and normalized net income of $174,853, versus GAAP net loss of $233,314. These measures add back $618,144 of professional fees related to regulatory matters and litigation, with a stated $209,977 tax expense adjustment for normalized net income.
Changes, outlook, and risks
- Revenue and gross margin improved year over year, but higher SG&A more than offset gross-profit growth, widening GAAP net loss. Operating cash flow turned negative from slightly positive in the prior-year quarter.
- Management said cash on hand and expected operating cash generation would fund operations, R&D, and capital expenditures for the next 12 months. This is management’s expectation, not a quantified forecast; the filing gives no formal revenue or earnings guidance.
- Management attributed stronger gross profit partly to higher sales, lower cost of goods sold, the freeze on the medical-device tax, and lower payroll and lean-initiative consulting costs. It expected infusion sales to benefit from developing markets and FREEDOM60 enhancements, while noting no assurance that product development will yield commercially successful products.
- EMED Technologies litigation concerning RMS needle sets remains unresolved. A California motion seeking a second preliminary injunction affecting RMS sales was pending; a separate Texas patent case was stayed pending a USPTO validity decision. Reexamination and inter partes review proceedings were ongoing, and the company said outcomes could not be predicted.
- After quarter-end, Cyril Narishkin resigned as President, Interim COO, and director for personal reasons, effective June 24, 2016; he was to continue as a consultant through January 2017. Andrew Sealfon was reinstated as President on June 29, 2016.
- Other stated risks include FDA and other regulatory requirements, competition, reimbursement and home-health-care regulation, market acceptance, patent enforcement, key-person dependence, and access to sufficient capital. Management said lease-accounting changes were expected to have a material impact upon adoption.
Important facts for investors to verify
- Confirm the registrant’s identity and ticker: the request names KORU Medical Systems, but the supplied filing names Repro Med Systems, Inc.
- Reconcile the reported $4.1 million liquidity reference in MD&A with the balance sheet: $3.861 million cash plus $261,118 in certificates of deposit.
- Review the nature, timing, and repeatability of the $618,144 professional-fee add-back underlying the non-GAAP results.
- Track operating cash use and working-capital movements, particularly prepaid expenses and increased accounts payable, against management’s 12-month liquidity assertion.
- Monitor EMED litigation and USPTO proceedings for potential effects on needle-set sales, particularly in California.
- Review the post-quarter leadership transition and the potential dilution and compensation effects of the 1.06 million outstanding options and the stock-repurchase program.