Business context and reporting period
The filing is for Repro Med Systems, Inc. (the registrant named in the filing), a designer, manufacturer and marketer of medical devices, primarily for ambulatory infusion and emergency medical applications. It covers the fiscal quarter and nine months ended November 30, 2015, compared with the corresponding 2014 periods. The filing does not identify the registrant as KORU Medical Systems.
Financial performance and condition
| Metric | Three months ended Nov. 30, 2015 | Three months ended Nov. 30, 2014 | Nine months ended Nov. 30, 2015 | Nine months ended Nov. 30, 2014 |
|---|---|---|---|---|
| Net sales | $3.145 million | $2.655 million | $8.942 million* | $7.797 million |
| Gross profit / margin | $2.109 million / 67.1% | $1.580 million / 59.5% | $5.634 million / 63.0% | $4.743 million / 60.8% |
| Operating profit | $290,215 | $134,434 | $718,132 | $694,597 |
| Net income | $167,552 | $92,692 | $438,126 | $453,742 |
| Operating cash flow | Not presented quarterly | $913,999 | $392,187 |
Quarterly sales increased 18.4% year over year, primarily on domestic infusion-product sales. Nine-month sales increased 14.7%; domestic and international sales grew 14.2% and 17.2%, respectively. Quarterly net income rose 80.8%, while nine-month net income declined 3.4%. Nine-month selling, general and administrative expense rose 32.8% to $4.568 million; research and development expense fell 64.6% to $143,940.
At November 30, 2015, cash and cash equivalents were $3.340 million, certificates of deposit $259,789, and current assets $6.906 million against current liabilities of $1.141 million. Total assets were $8.194 million and total liabilities $1.423 million. The balance sheet reports no borrowings or interest-bearing debt. Cash increased $782,296 over the nine months; investing activities used $131,703 and financing activities were zero. Capital expenditures and patent payments were included in investing outflows.
Material changes, outlook and risks
- Management attributed improved gross margins to lean-manufacturing initiatives, greater capacity and lower direct assembly labor costs. Quarterly SG&A rose 35.1%, including litigation and regulatory consulting expenses, salary costs and new director compensation. Nine-month SG&A also included severance, recruiting and consulting costs.
- Management said cash on hand and expected operating cash flows should fund operations, R&D and capital expenditures for the next 12 months. It cited continued growth in the subcutaneous immunoglobulin market; no quantified revenue or earnings guidance was provided.
- The company introduced the FreedomEdge infusion pump in March 2015 and had begun shipping it for evaluation. It also described ongoing development and market expansion efforts, while cautioning that commercial success of future products is not assured.
- Patent litigation with EMED is ongoing in California and Texas. A preliminary injunction restricts certain company statements about EMED products; the company said it is complying. The USPTO instituted reexamination of one EMED patent, and a decision on inter partes review was expected within three months. Management said outcomes are uncertain.
- Other stated risks include FDA and other government regulation, competition, reimbursement, market acceptance, patent protection, ability to raise capital, liquidity, and dependence on key personnel. The filing says disclosure controls were effective and reports no material quarterly change in internal control over financial reporting.
- The board authorized a repurchase program for up to 1 million shares; none had been purchased by November 30, but 33,454 shares had been repurchased by January 8, 2016, at an average $0.47. The 2015 option plan was subject to shareholder approval; 1,155,000 options were reported outstanding at November 30, with $0.2 million of unrecognized compensation cost.
- Related-party matters include a consulting agreement with the interim COO, director compensation partly payable in shares, a director’s clinical-support agreement, a building lease involving a director, and a month-to-month aircraft lease from a company controlled by the president.
Important facts for investors to verify
- Issuer identity: confirm the filing is the intended company filing; its cover and financial statements identify Repro Med Systems, Inc., not KORU Medical Systems, Inc.
- Revenue discrepancy: the income statement reports nine-month 2015 net sales of $8,941,676, while MD&A reports $8,941,646; verify the correct figure.
- Growth quality: assess whether margin gains and stronger operating cash flow are sustainable given increased SG&A, reduced R&D spending and working-capital movements.
- Legal and dilution exposure: monitor EMED litigation and the review proceedings, shareholder approval of the option plan, actual repurchases, and the effects of options and share-based compensation.
- Outlook assumptions: evaluate management’s 12-month liquidity assessment against product adoption, regulatory and reimbursement risks, and the company’s ability to expand its markets.
*The income-statement amount is used here; the filing’s MD&A gives a figure $30 lower.