Business context and reporting period
This unaudited Form 10-Q is filed by Repro-Med Systems, Inc. for the three months ended May 31, 2013, compared with the three months ended May 31, 2012. The filing describes a business that designs, manufactures, and markets medical devices, including the FREEDOM60 infusion pump and RES-Q-VAC portable suction system. The filing’s registrant name differs from the KORU Medical Systems name in the request metadata.
Financial performance and position
| Metric | Quarter ended May 31, 2013 | Prior-year quarter |
|---|---|---|
| Net sales | $1,876,386 | $1,744,165 |
| Gross profit margin | 62.3% | 63.5% |
| Net operating profit | $125,099 | $146,121 |
| Net income | $73,354 | $90,339 |
| Cash provided by operations | $214,421 | $102,806 |
Sales increased 7.6%, while net income declined 18.8%. Net income per share is shown as a dash in the filing; no clear per-share value is provided.
At May 31, 2013, cash and cash equivalents were $1.63 million, certificates of deposit were $257,009, and current assets totaled $4.27 million. Current liabilities were $469,099, representing a derived current ratio of approximately 9.1x. Total assets were $5.25 million and stockholders’ equity was $4.47 million. Notes payable, including related-party notes, were reported as zero at quarter-end, following debt repayments during the quarter.
Operating cash flow was $214,421; investing cash outflow was $72,162, including $68,232 for property and equipment and $3,930 for patents; financing cash outflow was $439,306, primarily reflecting $437,832 paid on related-party notes. Cash declined by $297,047 to $1.63 million.
Material changes versus the prior comparable period
- Revenue rose due in part to higher FREEDOM60 pump and tubing sales and increased RMS High-Flo safety needle-set sales in domestic and international markets.
- Gross margin fell to 62.3% from 63.5%; cost of goods sold increased 11.0%, faster than sales.
- Operating profit and net income fell despite sales growth. SG&A increased 7.9%, while depreciation and amortization rose by $14,400.
- Management attributed higher costs to the medical-device excise tax, higher benefit costs, restricted-stock compensation amortization, expanded sales and marketing staffing, advertising and trade shows, and legal work related to patents and litigation.
- Interest expense declined to $4,447 from $7,207, reflecting retirement of debt. Currency-exchange loss worsened to $11,062 from $3,013.
- Operating cash flow improved year over year, supported by lower receivables and noncash restricted-stock compensation amortization. Inventory increased by $112,658 during the quarter.
Outlook, commentary, risks, and unusual items
Management stated that available capital and expected sales would allow the company to meet or exceed liquidity needs for the next 12 months. The filing provides no numerical revenue or earnings guidance and cautions that quarterly results are not necessarily indicative of full-year results.
The company reported FDA clearance on May 6, 2013, for enhancements to its RMS Subcutaneous Safety Needle Sets, including additional needle lengths and expanded use claims. Management described reimbursement uncertainty, FDA and other regulatory requirements, competition, market acceptance, access to capital, patent matters, and dependence on key personnel as risks. It also cautioned that Medicare reimbursement could change and described a competing mechanical pump whose FDA approval the company questioned. The company issued customer safety bulletins concerning use of non-RMS accessories with FREEDOM60 systems.
The company leased an aircraft from an entity controlled by its president for $5,375 during the quarter; the original agreement had expired and payments continued month to month. Management reported no material subsequent events through July 15, 2013. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter. Ordinary-course claims and suits may arise; no specific material proceeding is detailed in the supplied filing text.
Important facts for investors to verify
- Confirm the reporting entity and its relationship, if any, to KORU Medical Systems, since the filing identifies the registrant as Repro-Med Systems, Inc.
- Review subsequent filings for sales trends, margins, and whether the stated 12-month liquidity expectation was achieved.
- Assess the effect of the medical-device excise tax, reimbursement rules, and any changes in Medicare coverage on product demand and margins.
- Monitor the company’s competitive, regulatory, patent, and product-safety disclosures, including the reported competing pump.
- Review related-party arrangements and verify the reported payoff of related-party debt and ongoing month-to-month aircraft lease.