KORU Medical Systems, Inc. (filed as Repro-Med Systems, Inc.) — 10-Q Summary
Reporting period: Three months ended May 31, 2012, compared with the three months ended May 31, 2011. The filing identifies the registrant as Repro-Med Systems, Inc.
Financial results
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net sales | $1,744,165 | $1,493,970 | Up 16.7% |
| Gross profit margin | 63.5% | 63.8% | Down 0.3 percentage points |
| Operating profit | $146,121 | $331,961 | Down 56.0% |
| Net income | $90,339 | $197,959 | Down 54.4% |
| Cash provided by operations | $102,806 | $346,619 | Down $243,813 |
- Cost of goods sold was $637,362, up 18.0%. Selling, general and administrative expense rose 50.3% to $881,770; research and development expense increased to $38,375 from $12,727.
- Basic and diluted earnings per share are displayed as a dash for 2012; the filing does not provide a clear per-share value.
- At May 31, cash and cash equivalents were $1,727,378, certificates of deposit $255,356, and current assets $4,169,340. Total assets were $4,805,120.
- Total liabilities were $1,164,053, including approximately $469,000 in notes payable to related parties. Stockholders’ equity was $3,641,067. The filing reports no separate credit facility or debt covenant information.
- Cash decreased $29,845 during the quarter. Investing activities used $122,024, primarily for property and equipment; financing activities used $10,627 for debt payments.
Changes and management commentary
Management attributed sales growth primarily to increased sales of RMS High-Flo Subcutaneous Safety Needle Sets and improved domestic and international sales of both those products and the FREEDOM60 infusion pump. Higher operating expenses—including expanded sales and marketing staffing, advertising, production payroll, research and development, and increased depreciation—more than offset revenue growth and reduced operating profit and net income.
Management said improved collections reduced accounts receivable by 16.7% despite higher sales. Inventory increased by approximately $150,000, partly to support High-Flo product demand, contributing to lower operating cash flow year over year. Management stated that cash and expected operating needs should be sufficient for at least the next twelve months. No specific revenue or earnings guidance was provided.
Products, risks, and other items
- The company designs, manufactures, and markets medical devices, principally for ambulatory infusion and emergency medical applications. Its products are subject to FDA regulation.
- On June 5, 2012, the company announced results of a simulated-use study supporting the High-Flo sets’ safety-set designation; the product name was updated to RMS High-Flo Subcutaneous Safety Needle Sets.
- Risks highlighted include reimbursement changes, market acceptance and competition, FDA and other government regulation, product development, access to capital, and dependence on key personnel. Management also cautioned that interim results may not indicate full-year performance.
- The company leases an aircraft from an entity controlled by its president. The prior lease expired, and payments continued month to month; reported quarterly payments were $5,375.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Ordinary-course claims and suits may arise; no specific material proceeding is described.
Important facts for investors to verify
- Whether sales growth and High-Flo demand continued after this quarter, and whether increased spending produced durable growth.
- Inventory levels, cash conversion, and operating cash flow, given the year-over-year decline in cash generated from operations.
- Current Medicare and other reimbursement terms, and the effect of any changes or competitive products on FREEDOM60 sales.
- Terms and ongoing payments for the related-party aircraft lease, and repayment terms for related-party notes.
- Whether subsequent filings provide clear earnings-per-share figures and updated liquidity or outlook information.