KORU Medical Systems(KRMD) - 2023 Q4 - Annual Report

PART I Business The company develops, manufactures, and commercializes subcutaneous infusion solutions with revenue from domestic, international, and novel therapy segments - The company's revenue is primarily derived from its mechanical infusion products, the FREEDOM Infusion Systems, used for subcutaneous drug delivery[17][19] - A significant portion of sales is concentrated through a small number of distributors, with five distributors accounting for approximately 74% of net revenues[30] - The company relies heavily on single-source suppliers and a contract manufacturer for approximately 80% of its consumables[32][33] - As of December 31, 2023, the company's intellectual property portfolio includes 15 U.S. patents and 60 foreign patents[58] Research and Development Expenditure | Year | R&D Expense (USD) | | :--- | :--- | | 2023 | $5.7 million | | 2022 | $5.0 million | Risk Factors The company faces significant business risks from supplier and customer concentration, regulatory challenges, and stock ownership concentration Risks Related to Our Business - The company's EU device approval is at risk following a negative recommendation from its notified body, which could materially affect revenues[96] - A high concentration of customers exists, with five distributors comprising approximately 74% of net revenues as of December 31, 2023[111] - The company is dependent on single-source suppliers for a majority of its raw materials and components, posing supply chain disruption risks[124] - Compliance with the new EU Medical Device Regulation (MDR) by December 2028 is required to continue selling products in the EU[72][74] Risks Related to Ownership of Our Common Stock - There is a significant concentration of stock ownership, with three stockholders beneficially owning approximately 17%, 11%, and 7%[154] - The company has never paid dividends and does not intend to in the foreseeable future[155] - The common stock price has been volatile, trading between $1.82 and $12.84 per share since its Nasdaq listing in October 2019[158] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable[166] Properties The company's principal facility is a 43,975 square foot leased space in Mahwah, New Jersey - The company leases a 43,975 square foot facility in Mahwah, New Jersey for its headquarters and manufacturing[171] Legal Proceedings The company reports no material legal proceedings as of the filing date - None[172] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[173] PART II Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "KRMD," and no cash dividends are planned - Common stock trades on the Nasdaq Capital Market under the symbol "KRMD"[175] - The company does not plan to pay cash dividends in the foreseeable future[175] Selected Financial Data This section is not applicable as the company is a smaller reporting company - Not applicable[177] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal year 2023 saw a 2.2% revenue increase to $28.5 million, an improved gross margin, but a widened net loss to $13.7 million Results of Operations - The increase in net loss was primarily driven by the establishment of a $6.0 million valuation allowance for the non-realization of deferred tax assets[193] Net Revenues by Segment (FY 2023 vs. FY 2022) | Segment | 2023 (USD) | 2022 (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Domestic Core | $22,446,519 | $21,205,204 | +5.9% | | International Core | $4,596,097 | $4,164,714 | +10.4% | | Novel Therapies | $1,475,050 | $2,526,119 | -41.6% | | Total | $28,517,666 | $27,896,037 | +2.2% | Profitability Metrics (FY 2023 vs. FY 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Gross Profit | $16.7 million | $15.4 million | | Gross Margin | 58.6% | 55.1% | | Net Loss | ($13.7 million) | ($8.7 million) | Liquidity and Capital Resources - The company's principal source of liquidity is cash on hand, which was $11.5 million as of December 31, 2023[195] - Management expects that cash on hand and cash flows from operations will be sufficient to meet requirements for at least the next twelve months[197] - Subsequent to year-end, on March 8, 2024, the company entered into a new loan and security agreement providing for a $5 million revolving credit facility and a $5 million term loan facility[312] Cash Flow Summary (FY 2023 vs. FY 2022) | Activity | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,892,553) | ($5,404,549) | | Net cash used in investing activities | ($814,597) | ($2,801,568) | | Net cash (used in)/provided by financing activities | ($218,867) | $279,485 | Quantitative and Qualitative Disclosures about Market Risk This section is not applicable as the company is a smaller reporting company - Not applicable[221] Financial Statements and Supplementary Data This section includes audited financial statements for 2023 and 2022, with an unqualified opinion from the independent auditor - The independent auditor identified the deferred tax valuation allowance as a critical audit matter, noting the high degree of management judgment required in its estimation[231][232] Key Balance Sheet Data (As of Dec 31) | Account | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Cash and cash equivalents | $11,482,240 | $17,408,257 | | Total Current Assets | $20,255,929 | $29,801,636 | | Total Assets | $28,460,972 | $42,332,443 | | Total Current Liabilities | $4,454,278 | $6,958,940 | | Total Liabilities | $8,107,201 | $11,006,480 | | Total Stockholders' Equity | $20,353,771 | $31,325,963 | Key Statement of Operations Data (Year Ended Dec 31) | Account | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Net Revenues | $28,517,666 | $27,896,037 | | Gross Profit | $16,708,282 | $15,368,986 | | Net Operating Loss | ($10,269,979) | ($10,780,873) | | Net Loss | ($13,741,062) | ($8,661,142) | | Net Loss Per Share (Basic & Diluted) | ($0.30) | ($0.19) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants - None[316] Controls and Procedures Management concluded that disclosure controls, procedures, and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were effective[317] - Based on the COSO framework, management determined that the company maintained effective internal control over financial reporting as of December 31, 2023[321] Other Information The company reports no other information for this item - None[323] PART III Directors, Executive Officers, Corporate Governance, Executive Compensation, and Other Matters Required information for Items 10-14 is incorporated by reference from the company's 2024 proxy statement - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees and Services (Item 14) is incorporated by reference from the registrant's 2024 proxy statement[326][327][328] PART IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including material contracts and certifications - All financial statement schedules have been omitted as they are not required or applicable[332] - The report includes a list of filed exhibits, including corporate governance documents, material agreements, and Sarbanes-Oxley certifications[334][335][336] Form 10-K Summary The company has not provided a summary for Form 10-K - None[338]