KORU Medical Systems(KRMD) - 2021 Q2 - Quarterly Report

General Information FORM 10-Q Filing Details Outlines the company's Form 10-Q filing, classification as a non-accelerated and smaller reporting company, and common stock outstanding - Filing Type: Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934[2] - Registrant Name: REPRO MED SYSTEMS, INC. (KORU Medical Systems)[3] Company Classification | Classification | Status | | :--------------- | :----- | | Large accelerated filer | [] | | Accelerated filer | [] | | Non-accelerated filer | [X] | | Smaller reporting company | [X] | | Emerging growth company | [_] | - Common stock outstanding as of August 11, 2021: 44,511,162 shares[5] PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited) Presents unaudited financial statements, showing decreased cash, increased net losses, and negative operating cash flow for the period ended June 30, 2021 Balance Sheets Summarizes unaudited balance sheets, highlighting changes in assets, liabilities, and equity between June 30, 2021, and December 31, 2020 Key Balance Sheet Figures (Unaudited) | Metric | June 30, 2021 ($) | December 31, 2020 ($) | Change ($) | Change (%) | | :-------------------------- | :-------------- | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $26,538,478 | $27,315,286 | $(776,808) | (2.84%) | | Total Current Assets | $37,140,181 | $37,525,792 | $(385,611) | (1.03%) | | Total Assets | $40,598,900 | $39,918,934 | $679,966 | 1.70% | | Total Current Liabilities | $3,311,125 | $3,666,402 | $(355,277) | (9.69%) | | Total Liabilities | $3,335,158 | $3,761,955 | $(426,797) | (11.34%) | | Total Stockholders' Equity | $37,263,742 | $36,156,979 | $1,106,763 | 3.06% | Statements of Operations Summarizes unaudited statements of operations, highlighting net sales, gross profit, and net loss for the three and six months ended June 30, 2021 and 2020 Statements of Operations (Three Months Ended June 30) | Metric | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | :--------- | | Net Sales | $5,528,174 | $7,708,904 | $(2,180,730) | (28.29%) | | Gross Profit ($) | $3,210,184 | $4,909,880 | $(1,699,696) | (34.62%) | | Total Operating Expenses | $4,591,238 | $5,941,881 | $(1,350,643) | (22.73%) | | Net Operating Loss | $(1,381,054) | $(1,032,001) | $(349,053) | 33.82% | | Loss Before Income Taxes | $(1,369,865) | $(1,045,119) | $(324,746) | 31.07% | | Net Loss | $(1,124,549) | $(1,076,038) | $(48,511) | 4.51% | | Basic Net Loss Per Share | $(0.03) | $(0.03) | $0.00 | 0.00% | Statements of Operations (Six Months Ended June 30) | Metric | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------ | :---------- | :---------- | | Net Sales | $10,959,125 | $14,038,913 | $(3,079,788) | (21.94%) | | Gross Profit ($) | $6,442,038 | $8,698,090 | $(2,256,052) | (25.94%) | | Total Operating Expenses | $10,036,381 | $9,147,268 | $889,113 | 9.72% | | Net Operating Loss | $(3,594,343) | $(449,178) | $(3,145,165) | 700.21% | | Loss Before Income Taxes | $(3,588,364) | $(453,763) | $(3,134,601) | 690.72% | | Net Loss | $(2,400,687) | $(626,610) | $(1,774,077) | 283.13% | | Basic Net Loss Per Share | $(0.05) | $(0.02) | $(0.03) | 150.00% | Statements of Cash Flows Summarizes unaudited statements of cash flows, detailing operating, investing, and financing activities for the six months ended June 30, 2021 and 2020 Statements of Cash Flows (Six Months Ended June 30) | Activity | 2021 ($) | 2020 ($) | Change ($) | | :------------------------------------------ | :------------- | :------------- | :---------- | | Net cash (used in)/provided by operating activities | $(2,776,150) | $2,707,549 | $(5,483,699) | | Net cash used in investing activities | $(167,136) | $(513,273) | $346,137 | | Net cash provided by financing activities | $2,166,478 | $30,064,144 | $(27,897,666) | | Net (decrease)/increase in cash and cash equivalents | $(776,808) | $32,258,420 | $(33,035,228) | | Cash and cash equivalents, end of period | $26,538,478 | $38,129,349 | $(11,590,871) | Statements of Stockholders' Equity Details unaudited statements of stockholders' equity, highlighting changes from net loss, stock-based compensation, and capital raises for the periods ended June 30, 2021 and 2020 Total Stockholders' Equity | Date | Amount ($) | | :--------------- | :------------- | | June 30, 2021 | $37,263,742 | | December 31, 2020 | $36,156,979 | | June 30, 2020 | $39,247,254 | | December 31, 2019 | $11,236,080 | - Key changes in stockholders' equity for the six months ended June 30, 2021, included issuances for stock-based compensation, litigation settlement, and options exercised, offset by a net loss[21] - Key changes for the six months ended June 30, 2020, included a significant capital raise of $26,471,980, stock-based compensation, litigation settlement share issuance, and options exercised[22] Notes to Financial Statements Details notes to the unaudited financial statements, covering accounting policies, property, commitments, stock-based compensation, debt, leases, equity, and subsequent events NOTE 1 — Nature of Operations and Summary of Significant Accounting Policies Outlines KORU Medical Systems' operations, revenue recognition policies, and adoption status of new accounting standards, operating as a single segment - KORU Medical Systems designs, manufactures, and markets proprietary portable and innovative medical devices primarily for the ambulatory infusion market, operating as one segment[23] - Revenue is recognized when shipment occurs and the customer obtains control and ownership of the goods[38] Net Sales by Geography (Three Months Ended June 30) | Category | 2021 Sales ($) | 2020 Sales ($) | Change ($) | Change (%) | | :---------- | :----------- | :----------- | :--------- | :--------- | | Domestic | $4,645,770 | $6,745,810 | $(2,100,040) | (31.1%) | | International | $882,404 | $963,094 | $(80,690) | (8.4%) | | Total | $5,528,174 | $7,708,904 | $(2,180,730) | (28.3%) | Net Sales by Geography (Six Months Ended June 30) | Category | 2021 Sales ($) | 2020 Sales ($) | Change ($) | Change (%) | | :---------- | :------------ | :------------ | :---------- | :---------- | | Domestic | $9,092,559 | $12,086,676 | $(2,994,117) | (24.8%) | | International | $1,866,566 | $1,952,237 | $(85,671) | (4.4%) | | Total | $10,959,125 | $14,038,913 | $(3,079,788) | (21.9%) | - Adopted ASU No. 2019-12 (Income Taxes) on January 1, 2021, with no impact on financial statement disclosures[44] - Assessing the impact of ASU No. 2016-13 (Credit Losses) and ASU No. 2020-04 (Reference Rate Reform), which are not yet adopted[45][46] NOTE 2 — Property and Equipment Summarizes changes in property and equipment, net, and depreciation expense for the periods ended June 30, 2021, compared to prior periods Property and Equipment, Net | Date | Amount ($) | | :--------------- | :------------- | | June 30, 2021 | $1,110,550 | | December 31, 2020 | $1,167,623 | Depreciation Expense | Period | 2021 Amount ($) | 2020 Amount ($) | | :-------------------------- | :------------ | :------------ | | Three Months Ended June 30 | $100,564 | $79,245 | | Six Months Ended June 30 | $200,967 | $152,013 | NOTE 3 — Commitments and Contingencies Details the company's legal proceedings, including the dismissal of a class action lawsuit, and its manufacturing supply agreement - Lead plaintiff voluntarily dismissed a putative class action lawsuit against the Company and its Chief Financial Officer and former Chief Executive Officer on July 12, 2021[53][55] - Entered into a five-year Manufacturing and Supply Agreement with Command Medical Products, Inc. on November 11, 2020, for subassemblies, needle sets, and tubing products[56][57] NOTE 4 — Stock-Based Compensation Summarizes significant stock option and restricted stock grants, increased compensation expense, and unrecognized costs for share-based arrangements - Granted 150,000 non-qualified options to Interim CEO James M. Beck and 1,000,000 non-qualified options to incoming President and CEO Linda Tharby in Q1 2021[60][61] - Issued three restricted stock awards for an aggregate 1,000,000 shares of common stock to Linda Tharby for $3,310,000[62] Stock-Based Compensation Expense (Time-Based Stock Options) | Period | 2021 Amount ($) | 2020 Amount ($) | | :-------------------------- | :------------ | :------------ | | Six Months Ended June 30 | $1,528,522 | $290,991 | - All 1,000,000 performance-based stock options outstanding at January 1, 2021, were forfeited by June 30, 2021, resulting in a compensation expense reversal of $(408,747)[73] - Unrecognized compensation cost related to non-vested share-based compensation arrangements was $5.4 million (expected over 46 months) and $2,458,451 for unvested restricted shares (expected over 21 months) as of June 30, 2021[71][75] NOTE 5 — Debt Obligations Outlines the renewal of a $3.5 million revolving line of credit and a $2.5 million equipment financing agreement, with no outstanding amounts as of June 30, 2021 - Renewed a $3.5 million revolving line of credit with KeyBank on June 24, 2021, with an interest rate of Prime Rate minus 1.50%, due June 1, 2022[76] - No amount was outstanding against the line of credit as of June 30, 2021[79] - Entered into a Progress Payment Loan and Security Agreement with Key Equipment Finance for up to $2.5 million in equipment financing, with no outstanding amount as of June 30, 2021[80] NOTE 6 — Leases Summarizes increased total lease costs, decreased right-of-use assets and liabilities, and weighted-average lease terms and discount rates Total Lease Cost (Six Months Ended June 30) | Year | Operating Lease Cost ($) | Short-term Lease Cost ($) | Total Lease Cost ($) | | :--- | :------------------- | :-------------------- | :--------------- | | 2021 | $75,290 | $68,437 | $143,727 | | 2020 | $75,843 | $13,688 | $89,531 | Operating Lease Right-of-Use Assets | Date | Amount ($) | | :--------------- | :------------- | | June 30, 2021 | $166,483 | | December 31, 2020 | $236,846 | Weighted Average Lease Terms and Discount Rates | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------- | :------------ | :---------------- | | Operating leases (term) (Years) | 0.9 Years | 1.4 Years | | Finance leases (term) (Years) | 0.4 Years | 0.7 Years | | Operating leases (discount rate) (%) | 4.75% | 4.75% | | Finance leases (discount rate) (%) | 4.75% | 4.75% | NOTE 7 — Equity Outlines a $26.6 million public offering in June 2020 and a $10.0 million stock repurchase program with no further purchases in 2021 - In June 2020, the company issued 3,593,750 shares of common stock, generating $26.6 million in net proceeds from a public offering[85] - A $10.0 million stock repurchase program was authorized through December 31, 2021. As of December 31, 2020, $3,499,358 was used to purchase 683,271 shares, with no further purchases made in 2021[86][128] NOTE 8 — Subsequent Events Details the voluntary dismissal of a putative class action lawsuit against the company and its officers on July 12, 2021 - A putative class action lawsuit against the Company and its Chief Financial Officer and former Chief Executive Officer was voluntarily dismissed without prejudice on July 12, 2021[87] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses KORU Medical Systems' financial condition, noting declines in net sales and gross profit, increased net losses, and negative operating cash flow Overview Outlines KORU Medical Systems' business, revenue sources, COVID-19 impact, and key sales and inventory trends for the period - KORU Medical Systems designs, manufactures, and markets proprietary portable and innovative medical devices for the ambulatory infusion market[92] - Revenue sources include domestic core, international core, and novel therapies (clinical trials and non-recurring engineering services)[94] - COVID-19 pandemic has impacted demand, raw material availability, and costs, potentially affecting future financial results[93] - Total net sales decreased 28% for the three months ended June 30, 2021, compared to the prior year, which included approximately $1.1 million in stocking orders and $1.2 million in novel therapies sales[95] - Sequential quarter net sales grew 2%, driven by 4% domestic core growth, indicating market recovery in new patient starts for SCIg therapy[95] - Inventory increased $0.7M from December 31, 2020, due to the transition of manufacturing to a secondary source[96] Results of Operations Examines the company's financial performance, detailing net sales, gross profit, and operating expenses for the three and six months ended June 30, 2021 and 2020 Three Months Ended June 30, 2021 vs. 2020 Compares financial results for the three months ended June 30, 2021, and 2020, noting declines in net sales and gross profit, and changes in operating expenses and net loss Net Sales (Three Months Ended June 30) | Category | 2021 Sales ($) | 2020 Sales ($) | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | :--------- | | Domestic Core | $4,597,797 | $5,557,577 | $(959,780) | (17.3%) | | Novel Therapies (Domestic) | $47,973 | $1,188,233 | $(1,140,260) | (96.0%) | | International Core | $859,694 | $853,043 | $6,651 | 0.8% | | Novel Therapies (International) | $22,710 | $110,051 | $(87,341) | (79.4%) | | Total Net Sales | $5,528,174 | $7,708,904 | $(2,180,730) | (28.3%) | Gross Profit (Three Months Ended June 30) | Metric | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :----- | :--- | :--- | :--------- | :--------- | | Gross Profit ($) | $3,210,184 | $4,909,880 | $(1,699,696) | (34.6%) | | Gross Margin | 58.1% | 63.7% | - | - | Operating Expenses (Three Months Ended June 30) | Expense Type | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :--------- | :--------- | | Selling, general and administrative | $4,085,945 | $3,201,831 | $884,114 | 27.6% | | Litigation | $0 | $2,346,914 | $(2,346,914) | (100.0%) | | Research and development | $386,878 | $298,196 | $88,682 | 29.7% | - Net loss increased by $48,511 (4.5%) to $(1,124,549) in 2021 from $(1,076,038) in 2020[103][104] Six Months Ended June 30, 2021 vs. 2020 Compares financial results for the six months ended June 30, 2021, and 2020, noting declines in net sales and gross profit, and changes in operating expenses and net loss Net Sales (Six Months Ended June 30) | Category | 2021 Sales ($) | 2020 Sales ($) | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------ | :---------- | :---------- | | Domestic Core | $9,010,214 | $10,430,343 | $(1,420,129) | (13.6%) | | Novel Therapies (Domestic) | $82,345 | $1,656,333 | $(1,573,988) | (95.0%) | | International Core | $1,838,600 | $1,837,910 | $690 | 0.0% | | Novel Therapies (International) | $27,966 | $114,327 | $(86,361) | (75.5%) | | Total Net Sales | $10,959,125 | $14,038,913 | $(3,079,788) | (21.9%) | Gross Profit (Six Months Ended June 30) | Metric | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :----- | :--- | :--- | :--------- | :--------- | | Gross Profit ($) | $6,442,038 | $8,698,090 | $(2,256,052) | (25.9%) | | Gross Margin | 58.8% | 62.0% | - | - | Operating Expenses (Six Months Ended June 30) | Expense Type | 2021 ($) | 2020 ($) | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :---------- | :---------- | | Selling, general and administrative | $9,078,774 | $5,964,811 | $3,113,963 | 52.2% | | Litigation | $0 | $2,446,072 | $(2,446,072) | (100.0%) | | Research and development | $723,719 | $554,221 | $169,498 | 30.6% | - Net loss significantly widened by $1,774,077 (283.1%) to $(2,400,687) in 2021 from $(626,610) in 2020[110] Liquidity and Capital Resources Evaluates the company's liquidity, cash on hand, and cash flow activities from operations, investing, and financing for the period - Principal source of liquidity is cash on hand, which was $26.5 million as of June 30, 2021[111] Cash Flows Summary (Six Months Ended June 30) | Activity | 2021 ($) | 2020 ($) | | :------------------------------------------ | :------------- | :------------- | | Net cash (used in)/provided by operating activities | $(2,776,150) | $2,707,549 | | Net cash used in investing activities | $(167,136) | $(513,273) | | Net cash provided by financing activities | $2,166,478 | $30,064,144 | - Net cash used in operating activities for H1 2021 was primarily due to the net loss, increased inventory ($0.7M), and decreased accrued expenses ($0.8M), partially offset by non-cash stock-based compensation ($1.3M) and deferred tax assets ($1.2M)[113] - Net cash provided by financing activities for H1 2021 was mainly from options exercised and non-cash common stock issuance for litigation settlement, a significant decrease from H1 2020 which included a $26.5 million capital raise and a $3.5 million line of credit draw[117] Accounting Pronouncements Recently Adopted and Not Yet Adopted Refers to Note 1 for details on recently adopted and not yet adopted accounting pronouncements and their financial statement impact - Details on recently adopted and not yet adopted accounting pronouncements are incorporated by reference from Note 1 to the financial statements[118][119] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The company states that this item is not applicable for this quarterly report - This item is not applicable[120] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[121] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2021[122] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings KORU Medical is not a party to any material litigation, with a previously disclosed class action lawsuit voluntarily dismissed - KORU Medical is not presently a party to any litigation or other legal proceeding believed to be material to its financial condition[123] - A previously disclosed putative class action lawsuit against the Company and its Chief Financial Officer and former Chief Executive Officer was voluntarily dismissed without prejudice on July 12, 2021[124] ITEM 1A. Risk Factors States no material changes to the company's risk factors since its Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to risk factors since the Annual Report on Form 10-K for the year ended December 31, 2020[125] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds Outlines the issuance of common stock to non-employee directors and the status of the $10.0 million stock repurchase program - Issued 14,615 shares of common stock to non-employee directors during the three months ended June 30, 2021, as compensation, relying on Section 4(2) of the Securities Act of 1933 for exemption from registration[126][127] - No purchases have been made under the $10.0 million stock repurchase program since December 31, 2020, as the company evaluates cash needs[128] ITEM 6. Exhibits Presents the exhibits filed with the Form 10-Q, including compensation summaries, equity plans, indemnification agreements, and certifications - Exhibits include Summary of Non-Employee Director Compensation, 2021 Omnibus Equity Incentive Plan, Form of Indemnification Agreement, Certifications (302 and 906 of Sarbanes-Oxley Act 2002), and Inline XBRL documents[131] Signatures Report Signatures Details the report's signing on August 11, 2021, by the President and CEO and CFO and Treasurer, certifying compliance - The report was signed on August 11, 2021, by Linda Tharby (President and Chief Executive Officer) and Karen Fisher (Chief Financial Officer and Treasurer)[130]