KORU MEDICAL SYSTEMS, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included under ITEM 8 of this Annual Report on Form 10-K.
This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those described under Part I - FORWARD LOOKING STATEMENTS and elsewhere in this Annual Report.
OVERVIEW
The Company designs, manufactures and markets proprietary portable and
innovative medical devices primarily for the ambulatory infusion market as
governed by the
KORU Medical continues to monitor its operations and government recommendations as they relate to the COVID-19 pandemic. We cannot predict the effects the pandemic may have on our business, in particular with respect to demand for our products, our strategy, and our prospects, the effects on our customers, or the impact on our financial results. For example, our future net revenue growth may continue to be impacted due to fewer new prescriptions for individuals with Primary Immune Deficiency Disease ("PIDD") and Chronic Inflammatory Demyelinating Polyneuropathy ("CIDP") as a result of patients not seeking care during the pandemic. We believe that the pandemic has precipitated limited availability and rising costs of raw materials and labor. We have accounted for these costs of which we are aware, but we may see a future impact on our financial results if current trends continue.
On
The Company began its implementation of secondary sourcing of our needle and
tubing sets to Command at the beginning of 2021 and is expected to complete the
implementation by the second half of 2022. The Company has entered into a lease
commencing
Our revenues derive from three business sources: (i) domestic core, (ii) international core, and (iii) novel therapies. Our core domestic and international revenues consist of sales of our products for the delivery of subcutaneous drugs that are FDA cleared for use with the KORU Medical infusion system, with the primary delivery today for immunoglobulin to treat PIDD and CIDP. Novel therapies consist of product revenues of our infusion system (syringe drivers, tubing and needles) for feasibility/clinical trials (pre-clinical studies, Phase I, Phase II, Phase III) of biopharmaceutical companies in the drug development process as well as non-recurring engineering services revenues received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and commercial use.
The Company achieved four quarters of sequential quarterly growth in 2021,
ending the year with net revenues of
Our gross margin, which is our gross profit stated as a percentage of net revenues, for 2021 was 58.6%, a decline from prior year of 61.8%. The majority of the decline was driven by delays in the transition to our secondary manufacturing source. We expect this transition to be completed in the second half of 2022.
Operating expenses in 2021 increased by 28.9%, or
- 24 -
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Year Ended
Net Revenues The following table summarizes our net revenues for the years endedDecember 31, 2021 and 2020: Years Ended December 31, Change from Prior Year % of Net Sales 2021 2020 $ % 2021 2020 Net Revenues Domestic Core$ 19,045,512 $ 18,895,923 $ 149,589 0.8% 81.1% 78.2% Novel Therapies 443,173 1,782,530 (1,339,357 ) (75.1% ) 1.9% 7.3% Total Domestic 19,488,685 20,678,453 (1,189,768 ) (5.8% ) 83.0% 85.5% International Core 3,856,972 3,368,519 488,453 14.5% 16.4% 13.9% Novel Therapies 144,518 129,476 15,042 11.6% 0.6% 0.6% Total International 4,001,490 3,497,995 503,495 14.4% 17.0% 14.5% Total$ 23,490,175 $ 24,176,448 $ (686,273 ) (2.8% )
Total net revenues decreased
Gross Profit
Our gross profit for the years ended
Years Ended December 31, Change from Prior Year
2021 2020 $ %
Gross Profit $ 13,769,578 $ 14,936,086 $ (1,166,508 ) (7.8%)
Stated as a Percentage of Net
Revenues 58.6% 61.8%
Gross profit decreased
Gross profit, stated as a percentage of net revenues, which is referred to as
gross margin, declined to 58.6% for the year ended
Selling, general and administrative, Litigation, and Research and development
Our selling, general and administrative, litigation and research and development
costs for the years ended
Years Ended December 31, Change from Prior Year
2021 2020 $ %
Selling, general and
administrative $ 17,862,314 $ 12,028,309 $ 5,834,005 48.5%
Litigation - 2,447,213 (2,447,213 ) (100.0%)
Research and development 2,473,669 1,296,754 1,176,915 90.8%
$ 20,335,983 $ 15,772,276 $ 4,563,707 28.9%
Stated as a Percentage of Net
Revenues 86.6% 65.2%
Selling, general and administrative expenses increased
- 25 -
--------------------------------------------------------------------------------
Litigation fees decreased
Research and development expenses increased
Depreciation and amortization For the year endedDecember 31, 2021 , depreciation and amortization expense increased$44,535 , or 10.6%, compared with the same period last year. We continued to invest in capital assets, mostly related to manufacturing and computer equipment. Net Loss Years Ended December 31, Change from Prior Year 2021 2020 $ % Net Loss$ (4,562,823 ) $ (1,212,063 ) $ (3,350,760 ) (276.5%) Stated as a Percentage of Net Revenues (19.4% ) (5.0% )
Our net loss for the year ended
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of liquidity is our cash of
To develop new products, support future growth, achieve operating efficiencies,
and maintain product quality, we must continue to invest in manufacturing
technologies, facilities and equipment, and research and development. We
estimate expenses to be between
Our inventory position was
On
In 2020, the Company purchased 683,271 shares of its common stock outstanding
for
- 26 -
--------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows:
Year Ended Year Ended
December 31, 2021 December 31, 2020 Net cash used in operating activities
$ 2,705,282 $ 23,223,832
Operating Activities
Operating cash outflows were
Net cash used in operating activities of
Offsetting these were primarily working capital changes which include an
increase in inventory of
Investing Activities
Our net cash used in investing activities of
Our net cash used in investing activities of
Financing Activities
The
The
We expect that our cash on hand, cash flows from operations, and our fully available credit facility will be sufficient to meet our requirements at least through the next 12 months and thereafter for the foreseeable future.
See "NOTE 10 - DEBT OBLIGATIONS" for further detail regarding the promissory note and loan agreement, and "NOTE 11 - EQUITY" regarding the equity offering in the accompanying "Notes to Financial Statements" appearing in this Annual Report on Form 10-K. Also, see "NOTE 4 - STOCK-BASED COMPENSATION" for further detail regarding the EMED settlement.
Debt and Borrowing Capacity
Refer to "NOTE 10 - DEBT OBLIGATIONS" in the accompanying "Notes to Financial Statements" appearing in this Annual Report on Form 10-K for further details regarding debt.
- 27 -
--------------------------------------------------------------------------------
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
Lease Commitments
We currently rent a building located at
This facility is used as our headquarters and for our general operations. We
expect to move in
Refer to "NOTE 5 - LEASES" in the accompanying "Notes to Financial Statements" appearing in this Annual Report on Form 10-K for further details regarding our operating and finance leases.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles of
Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
Revenue Recognition
The
The Company's revenues result from the sale of assembled products. We recognize revenues when shipment occurs, and at which point the customer obtains control and ownership of the goods. Shipping costs generally are billed to customers and are included in sales.
The Company generally does not accept return of goods shipped unless it is a Company error. The only credits provided to customers are for defective merchandise. The Company warrants the syringe driver from defects in materials and workmanship under normal use and the warranty does not include a performance obligation. The costs under the warranty are expensed as incurred.
Provisions for distributor pricing and annual customer growth rebates are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded or when it is probable the annual growth target will be achieved. Rebates are provided to distributors for the difference in selling price to distributor and pricing specified to select customers.
The Company established an allowance for charging off uncollectible trade accounts receivable that have both of the following characteristics: (a) They have a contractual maturity of one year or less, (b) They arose from the sale of goods or services.
Inventory
Inventories of raw materials are stated at the lower of standard cost, which approximates average cost, or market value including allocable overhead.
Work-in-process and finished goods are stated at the lower of standard cost or market value and include direct labor and allocable overhead.
- 28 -
--------------------------------------------------------------------------------
We maintain reserves for excess and obsolete inventory resulting from the potential inability to sell certain products at prices in excess of current carrying costs. We make estimates regarding the future recoverability of the costs of these products and record provisions based on historical experience, expiration of sterilization dates and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by management, additional inventory write downs may be required, which could unfavorably affect future operating results.
ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED
Refer to "NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" in the accompanying "Notes to Financial Statements" appearing in this Annual Report on Form 10-K.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Refer to "NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" in the accompanying "Notes to Financial Statements" appearing in this Annual Report on Form 10-K.
© Edgar Online, source
