Business Context and Reporting Period
Company: Repro-Med Systems, Inc. (Note: Metadata lists "KORU Medical Systems, Inc." but the filing text identifies the registrant as Repro-Med Systems, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: November 30, 2009
Business Overview: The Company researches, develops, and markets medical devices, primarily the Freedom60 Syringe Infusion System for ambulatory medication and the RES-Q-VAC Emergency Airway Suction System. The Company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Three Months Ended Nov 30, 2009 | Nine Months Ended Nov 30, 2009 |
|---|---|---|
| Net Sales | $898,103 | $2,658,288 |
| Net Income | $55,485 | $230,149 |
| Net Income Available to Common Stockholders | $55,485 | $226,149 |
| Net Operating Profit | $108,788 | $400,859 |
| Net Cash Provided by Operating Activities | N/A | $132,790 |
| Cash and Cash Equivalents (Ending) | $577,354 | $577,354 |
| Total Assets | $2,390,627 | $2,390,627 |
| Total Liabilities | $1,357,028 | $1,357,028 |
| Long-Term Debt (Less Current Portion) | $657,613 | $657,613 |
| Stockholders' Equity | $1,033,599 | $1,033,599 |
Margins (Nine Months): Gross Margin was approximately 65% ($1,730,272 gross profit / $2,658,288 sales). Net Profit Margin was approximately 8.7%.
Material Changes vs. Prior Period
- Revenue: Net sales increased 5.4% for the three months ended Nov 30, 2009, compared to the prior year quarter. For the nine-month period, sales increased 6.9%.
- Profitability: Net income decreased significantly. For the three months ended Nov 30, 2009, net income was $55,485 compared to $191,293 in the prior year. For the nine months, net income was $230,149 compared to $535,460 in the prior year.
- Expenses: Selling, General, and Administrative (SG&A) expenses increased 45% quarter-over-quarter and 37% year-over-year (nine months). This was driven by increased marketing for new products, hiring a European sales associate, and higher infrastructure costs. Research and Development expenses also increased.
- Cash Flow: Net cash provided by operating activities decreased to $132,790 for the nine months ended Nov 30, 2009, from $310,716 in the prior year, primarily due to lower net income and higher audit/legal fees.
- Debt: The Company refinanced a previous loan from a Director, replacing it with a new $672,663 loan. Additionally, 755,000 shares of common stock were issued to a Director to reduce debt.
Guidance, Outlook, and Risks
Management Commentary: Management believes the Freedom60 continues to gain market share in the subcutaneous immune globulin market. The Company intends to use current capital and increased sales to meet financial needs for the next twelve months. A $150,000 government grant (Trade Adjustment Assistance Program) was approved, with approximately $55,000 remaining as of Nov 30, 2009.
Risks and Contingencies:
- Market Risk: Dependence on Medicare reimbursement rates and potential competition from lower-cost Chinese devices for the RES-Q-VAC.
- Regulatory Risk: Uncertainty regarding FDA regulations and the ability to obtain necessary approvals for new products.
- Liquidity: Limited liquidity and dependence on key personnel.
- Contingency: The Company is contingently liable for approximately $28,000 in rework costs for a customer order, which has been provisioned in the financial statements.
Investor Verification Checklist
- Revenue Concentration: Verify the extent of reliance on the Freedom60 product line and specific reimbursement codes (HCPCS E0779) for revenue stability.
- Related Party Transactions: Review the terms of the $100,000 demand loan from the President and the $672,663 loan from a Director, including interest rates and maturity dates.
- Grant Utilization: Confirm the status and utilization of the $150,000 Trade Adjustment Assistance grant.
- Debt Service: Assess the impact of the $700,402 total long-term debt obligations on future cash flows, particularly the $42,789 due in 2010.
- Stock Dilution: Note the issuance of 755,000 shares to a Director for debt reduction and the existence of 3.4 million outstanding stock options.