Investigation of Repro Medical Systems, Inc.
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Repro Med Systems, Inc. d/b/a Koru Medical Systems (KRMD) Failed to Disclose its Use of Allowances to Incentivize Growth
On August 4, 2020, KORU announced strong second quarter financial results. Specifically, net sales had increased 44.1% over the previous quarter and gross profit rose 41.3% compared to the same quarter in the previous year.
On November 3, 2020, the Company reported that net sales had declined for third quarter 2020 “primarily attributable to lower clinical trial activity and allowances associated with U.S. sales.” Notwithstanding, the Company affirmed its confidence “in the strength of our core business, which is predominately comprised of recurring revenues and excludes clinical trials.” On a conference call on November 4, the Company reiterated that the decline in sales was due to “less U.S. clinical trial sales, higher allowances for gross rebates for certain customers, and payment discount and distribution fees.” To explain why the allowance came into this quarter, the Company acknowledged that customers trying to meet the thresholds began accruing in Q3 2020.
On January 25, 2021, KORU announced its preliminary financial results for fiscal 2020, expecting revenue of approximately $24 million. The Company attributed the results to, among other things, “[s]lower growth in net revenue as a result of strengthening our contractual position with large customers.” In the press release, the Company also announced that its CEO resigned, effective immediately. On this news, KORU’s stock price fell $0,80 per share, or 15.5%, to close at $4.33 per share on January 26, 2021.
On March 23, 2021, KORU announced its fourth quarter and full year 2020 results, reporting that net sales had been impacted by “growth rebates to secure [the Company’s] contractual position with several large customers in 2020” and “payment discounts and distribution fees at our largest distributor.”