KORU Medical Systems(KRMD) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) KORU Medical Systems reported Q1 2023 revenue of $7.4 million, a net loss of $2.4 million, decreased total assets, and increased cash used in operations Balance Sheets Total assets decreased to $38.3 million as of March 31, 2023, driven by reduced cash, with corresponding declines in liabilities and equity Balance Sheet Summary (Unaudited) | Balance Sheet Items | March 31, 2023 (USD) | December 31, 2022 (USD) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $12,224,865 | $17,408,257 | | Total Current Assets | $25,214,658 | $29,801,636 | | Total Assets | $38,253,980 | $42,332,443 | | Liabilities & Equity | | | | Total Current Liabilities | $4,524,217 | $6,958,940 | | Total Liabilities | $8,457,680 | $11,006,480 | | Total Stockholders' Equity | $29,796,300 | $31,325,963 | Statements of Operations Q1 2023 net sales grew 18.4% to $7.4 million, gross profit increased, but gross margin slightly declined, resulting in a narrowed net loss of $2.4 million Statements of Operations Summary (Unaudited) | Metric | Three Months Ended March 31, 2023 (USD) | Three Months Ended March 31, 2022 (USD) | | :--- | :--- | :--- | | Net Sales | $7,392,605 | $6,244,330 | | Gross Profit | $4,147,035 | $3,622,305 | | Total Operating Expenses | $7,203,863 | $6,748,820 | | Net Operating Loss | ($3,056,828) | ($3,126,515) | | Net Loss | ($2,410,885) | ($2,537,514) | | Net Loss Per Share (Basic & Diluted) | ($0.05) | ($0.06) | Statements of Cash Flows Net cash used in operating activities significantly increased to $4.7 million in Q1 2023, leading to a $5.2 million net decrease in cash and equivalents Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2023 (USD) | Three Months Ended March 31, 2022 (USD) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($4,660,583) | ($1,752,072) | | Net Cash Used in Investing Activities | ($283,837) | ($752,602) | | Net Cash Used in Financing Activities | ($238,972) | ($252,968) | | Net Decrease in Cash | ($5,183,392) | ($2,757,642) | | Cash and Cash Equivalents, End of Period | $12,224,865 | $22,577,247 | Statements of Stockholders' Equity Total stockholders' equity decreased to $29.8 million by March 31, 2023, primarily due to the net loss, partially offset by stock-based compensation - Stockholders' equity decreased by approximately $1.5 million during the quarter, from $31,325,963 to $29,796,300[17] - The primary reason for the decrease in equity was the net loss of $2,410,885[17] Notes to Financial Statements The notes detail accounting policies, revenue recognition, stock-based compensation, debt obligations, and comprehensive lease liabilities - The company's revenues are derived from three sources: domestic core, international core, and novel therapies. For Q1 2023, domestic sales constituted 85% of total revenues, consistent with Q1 2022[36][41] - As of March 31, 2023, the company had $3.9 million in total unrecognized compensation cost related to its 2015 stock option plan, expected to be recognized over a weighted-average period of 45 months[59] - The company has a $3.5 million revolving line of credit with Keybank, with no amount outstanding as of March 31, 2023. The maturity date is June 1, 2023[67] Lease Liabilities as of March 31, 2023 | Lease Type | Total Lease Liabilities (USD) | Weighted Avg. Remaining Term | | :--- | :--- | :--- | | Operating Leases | $3,913,923 | 9.4 Years | | Finance Leases | $468,538 | 4.3 Years | Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported an 18.4% revenue increase to $7.4 million, with slight gross margin decline, increased R&D, and sufficient liquidity for the next 12 months Overview The company develops medical devices for subcutaneous drug delivery, reporting 18.4% net revenue growth in Q1 2023 and completing key manufacturing and facility transitions - Q1 2023 net revenues increased by 18.4% to $7.4 million compared to $6.2 million in Q1 2022, with growth in all three business sources[79] - Completed the transition of finished goods manufacturing of needle and tubing sets to Command Medical Products, a third-party contract manufacturer[77] - Completed the move of its corporate headquarters and manufacturing facility to Mahwah, NJ during the first quarter of 2023[78] Results of Operations Total net revenues increased by 18.4% in Q1 2023 across all segments, but gross margin declined to 56.1% due to higher costs, leading to a narrowed net loss of $2.4 million Net Revenues Breakdown (Q1 2023 vs Q1 2022) | Revenue Source | Q1 2023 (USD) | Q1 2022 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Domestic Core | $5,719,135 | $4,993,536 | +14.5% | | International Core | $1,097,490 | $894,942 | +22.6% | | Novel Therapies | $575,980 | $355,852 | +61.9% | | Total | $7,392,605 | $6,244,330 | +18.4% | - Gross profit as a percentage of revenues decreased to 56.1% in Q1 2023 from 58.0% in Q1 2022, primarily due to higher manufacturing costs for labor and materials[83] - Research and development expenses increased by 36.3% ($0.4 million) due to new hires to support innovation efforts[84][86] Liquidity and Capital Resources The company's liquidity is primarily cash on hand, totaling $12.2 million, with management expecting sufficient resources for at least the next 12 months - The company's cash on hand was $12.2 million as of March 31, 2023[89] - Inventory increased by $0.2 million to $6.6 million at March 31, 2023, with an expectation to significantly reduce this position during the remainder of 2023[90] - Management expects that current cash, cash flows from operations, and available financing will be sufficient to meet requirements at least through March 31, 2024[92] Cash Flows Net cash used in operating activities was $4.7 million in Q1 2023, primarily due to net loss and unfavorable working capital changes, with investing and financing also using cash Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,660,583) | ($1,752,072) | | Net cash used in investing activities | ($283,837) | ($752,602) | | Net cash used in financing activities | ($238,972) | ($252,968) | - The $4.7 million use of cash in operations in Q1 2023 was primarily due to the $2.4 million net loss and working capital changes, including a $1.3 million decrease in accrued expenses and a $0.9 million decrease in accounts payable[95] Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this section is not applicable for the reporting period - The company stated that there are no applicable quantitative and qualitative disclosures about market risk for this period[100] Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[101] - No material changes to the company's internal control over financial reporting occurred during the first quarter of 2023[102] PART II. OTHER INFORMATION Risk Factors The company highlights a risk related to bank failures and financial institution instability, as its cash deposits exceed FDIC insurance limits - A key risk factor is the potential impact of bank failures, as the company's cash deposits exceed FDIC insurance limits[105] - A failure of a financial institution holding the company's funds could disrupt access to cash, adversely impact liquidity, and limit the ability to pay vendors[105] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL documents - The report includes CEO and CFO certifications as required by the Sarbanes-Oxley Act[106] - Interactive data files (Inline XBRL documents) are also included as exhibits[106]