KORU Medical Systems Inc

Previous wording

Our actual results may vary materially from the forward-looking statements made in this report due to important factors such as uncertainties associated with global health crises, inflation, war and other geopolitical conflicts, customer ordering patterns, availability and costs of raw materials and labor and our ability to recover such costs, our ability to convert inventory to a source of cash, future operating results, growth of new patient starts and the SCIg market, our ability to partner with biopharmaceutical companies in our novel therapies business, Food and Drug Administration and foreign authority regulations and the outcome of regulatory audits, introduction of competitive products, acceptance of and demand for new and existing products, ability to penetrate new markets, success in enforcing and obtaining patents, reimbursement related risks, government regulation of the home health care industry, success of our research and development effort, expanding the market of FREEDOM system demand in the SCIg market, availability of sufficient capital if or when needed, dependence on key personnel, and the impact of recent accounting pronouncements, as well as those risks and uncertainties described in Part II.— Item IA. “Risk Factors” in this report and from time to time in our past and future reports filed with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the year ended December 31, 2023 in addition to others. When used in this report, the words “estimate,” “project,” “believe,” “may,” “will,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements, which include, without limitation, statements regarding reduction of inventory, and need for additional financing. Such statements reflect current views with respect to future events based on currently available information and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to release publicly any revision to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Current wording

Our actual results may vary materially from the forward-looking statements made in this report due to important factors such as uncertainties associated with global health crises, inflation, war and other geopolitical conflicts, customer ordering patterns, availability and costs of raw materials and labor and our ability to recover such costs, future operating results, growth of new patient starts and the Ig market, our compliance with Food and Drug Administration and foreign authority regulations and the outcome of regulatory audits, introduction of competitive products, acceptance of and demand for new and existing products, ability to penetrate new markets, success in enforcing and obtaining patents, reimbursement related risks, government regulation of the home health care industry, success of our research and development effort, expanding the market of FREEDOMTM System demand in the SCIg market, availability of sufficient capital if or when needed, dependence on key personnel, and the impact of recent accounting pronouncements, as well as those risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2023. When used in this report, the words “estimate,” “project,” “believe,” “may,” “will,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements, which include, without limitation, statements regarding need for additional financing. Such statements reflect current views with respect to future events based on currently available information and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to release publicly any revision to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Previous wording

Our revenues derive from three business sources: (i) domestic core (which consists of US and Canada), (ii) international core, and (iii) novel therapies. Our domestic core and international core revenues consist of sales of our products for the delivery of subcutaneous drugs that are FDA cleared for use with the FREEDOM Infusion System, with the primary delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”). Novel therapies revenues consist of product revenues from 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 (“NRE”) received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and commercial use.

Current wording

Our revenues derive from three business sources: (i) domestic core (which consists of US and Canada), (ii) international core, and (iii) novel therapies. Our domestic core and international core revenues consist of sales of our products for the delivery of subcutaneous drugs that are FDA cleared for use with the FREEDOMTM System, with the primary delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”). Novel therapies revenues consist of product revenues from 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 (“NRE”) received from biopharmaceutical companies to ready or customize the FREEDOMTM System for clinical and commercial use.

Previous wording

The Company ended the first quarter of 2024 with $8.2 million in net revenues, a 10.9% increase compared with $7.4 million in the same period last year. Revenues were driven by volume growth in our core domestic and international business of 4.1% and 63.1% respectively, slightly offset by a 21.3% decline in our novel therapies business.

Current wording

The Company ended the second quarter of 2024 with $8.4 million in net revenues, a 21.5% increase compared with $6.9 million in the same period last year. Revenues were driven by growth in our core domestic and international business of 14.3% and 45.8%, respectively, and 49.9% in our novel therapies business.

Previous wording

Gross profit for the three months ended March 31, 2024, was $5.1 million, an increase of $1 million, or 23.1%, from $4.1 million for the same period last year, driven primarily by additional revenue from volume in our core businesses and manufacturing efficiencies from our outsourced manufacturing compared to the same period last year. Gross margin was 62.3%, an increase from 56.1% in the prior year period. We define gross margin as gross profit stated as a percentage of net revenues.

Current wording

Gross profit for the three months ended June 30, 2024, was $5.5 million, an increase of $1.6 million, or 40.9%, from $3.9 million for the same period last year, driven primarily by additional revenue from volume growth in each of our core and novel therapies businesses, and manufacturing efficiencies compared to the same period last year. Gross margin was 65.0% for the three months ended June 30, 2024, an increase from 56.1% in the prior year period. We define gross margin as gross profit stated as a percentage of net revenues.

Previous wording

Operating expenses for the three months ended March 31, 2024, were $7.1 million, compared to $7.2 million for the same period last year, driven primarily by a decrease of $0.1 million in research and development expenses.

Current wording

Operating expenses for the three months ended June 30, 2024, were $6.7 million, compared to $7.1 million for the same period last year, driven primarily by a decrease of $0.5 million in research and development expenses primarily due to timing of project spend.

Previous wording

Total net revenues increased $0.8 million, or 10.9%, to $8.2 million for the three months ended March 31, 2024, as compared with the same period in 2023. Domestic Core revenues increased by 4.1% from higher consumable volumes driven by new patients starts and share gains. International Core revenues increased by 63.1%, from higher consumable and pump volumes driven largely by increased Ig supply, increased penetration within approved indications, and geographic expansion. International orders were expedited for certain distribution partners of $0.26 million in March 2024 to ensure adequate inventory to fulfill patient needs in the event of a supply disruption related to the BSI regulatory review process. Novel therapies net revenues declined by 21.3% primarily driven by a milestone completion for a collaboration agreement in the prior year period.

Current wording

Total net revenues increased $1.5 million, or 21.5%, to $8.4 million for the three months ended June 30, 2024, as compared with the same period in 2023. Domestic core revenues increased by 14.3% to $6.2 million, primarily due to higher consumable and pump volumes driven by new patients starts and share gains. International core revenues increased by 45.8% to $1.6 million, primarily due to higher consumable and pump volumes driven largely by increased Ig supply, increased penetration within certain approved indications, and geographic expansion. International orders were expedited for certain distribution partners of $0.3 million in the second quarter of 2024 related to the BSI regulatory review process which has since been successfully appealed. Novel therapies net revenues increased by 49.9% to $0.6 million in the three months ended June 30, 2024 primarily driven by Phase III clinical trial orders and milestone completion from our collaboration agreements.

Previous wording

Gross profit increased $1.0 million to $5.1 million in the three months ended March 31, 2024, compared to $4.1 million in the same period in 2023. Gross margin increased to 62.3% compared to 56.1% in the first quarter of 2023. The increase in gross margin was primarily driven by production efficiencies from outsourced manufacturing and consolidation of US manufacturing sites when compared to the prior year period.

Current wording

Gross profit increased $1.6 million to $5.5 million in the three months ended June 30, 2024, compared to $3.9 million in the same period in 2023. Gross margin increased to 65.0% compared to 56.1% in the three months ended June 30, 2023. The increase in gross margin was primarily driven by increased production efficiencies, favorable sales mix driven by clinical trial orders, and increased average selling prices when compared to the prior year period. We also had a positive inventory valuation adjustment of $0.1 million during the three months ended June 30, 2024 which is not expected to recur in 2024.

Previous wording

Selling, general and administrative expenses decreased $0.1 million, or 1.3%, during the three months ended March 31, 2024 compared with the same period last year.

Current wording

Selling, general and administrative expenses decreased $0.1 million, or 0.5%, during the six months ended June 30, 2024 compared with the same period last year, primarily due to decreases in compensation and benefits expense.

Previous wording

Our net loss decreased $0.5 million in the three months ended March 31, 2024 compared with the same period last year, mostly driven by an increase in gross profit of $1.0 million and a decrease in operating expenses of $0.1 million partially offset by a decrease in tax benefit of $0.6 million.

Current wording

Our net loss decreased $2.0 million in the six months ended June 30, 2024 compared with the same period last year mostly driven by an increase in gross profit of $2.5 million and a decrease in operating expenses of $0.6 million, partially offset by a prior year tax benefit of $1.2 million.

Previous wording

Our principal source of liquidity is our cash on hand of $10.8 million as of March 31, 2024. Our principal source of operating cash inflows is from sales of our products and NRE. Our principal cash outflows relate to the purchase and production of inventory, funding of research and development, and selling, general and administrative expenses. To develop new products, support future growth, achieve operating efficiencies, and maintain product quality, we are continuing to invest in research and development, and equipment.

Current wording

Our principal source of liquidity is our cash on hand of $10.5 million as of June 30, 2024. Our principal source of operating cash inflows is from sales of our products and NRE. Our principal cash outflows relate to the purchase and production of inventory, funding of research and development, and selling, general and administrative expenses. To develop new products, support future growth, achieve operating efficiencies, and maintain product quality, we are continuing to invest in research and development and manufacturing equipment.

Previous wording

Our inventory position was $3.1 million at March 31, 2024, which reflects a decrease of $0.3 million from December 31, 2023.

Current wording

Our inventory position was $2.6 million at June 30, 2024, which reflects a decrease of $0.9 million from December 31, 2023.

Previous wording

We expect that our cash on hand and cash flows from operations will be sufficient to meet our requirements at least through the next twelve months. Continued execution on our longer-term strategic plan may require the Company to draw on our new credit facility, take on additional debt, raise capital through issuance of equity, or a combination of both. Our future capital requirements may vary from those currently planned and will depend on many factors, including our rate of sales growth, the timing and extent of spending on various strategic initiatives including research and development, our international expansion, the timing of new product introductions, market acceptance of our solutions, and overall economic conditions including inflation and the potential impact of global supply imbalances on the global financial markets. To the extent that current and anticipated future sources of liquidity are or are expected to be insufficient to fund our future business activities and requirements, we may be required to draw on our new credit facility or seek additional equity or debt financing sooner. There can be no assurance the Company will be able to obtain the financing or raise the capital required to fund its operations or planned expansion.

Current wording

We expect that our cash on hand and cash flows from operations will be sufficient to meet our requirements at least through the next twelve months. Continued execution on our longer-term strategic plan may require the Company to draw on our credit facility, take on additional debt, raise capital through issuance of equity, or a combination of both. Our future capital requirements may vary from those currently planned and will depend on many factors, including our rate of sales growth, the timing and extent of spending on various strategic initiatives including research and development, our international expansion, the timing of new product introductions, market acceptance of our solutions, and overall economic conditions including inflation and the potential impact of global supply imbalances on the global financial markets. To the extent that current and anticipated future sources of liquidity are or are expected to be insufficient to fund our future business activities and requirements, we may be required to draw on our new credit facility or seek additional equity or debt financing sooner. There can be no assurance the Company will be able to obtain the financing or raise the capital required to fund its operations or planned expansion.

Previous wording

Net cash used in operating activities was $0.3 million for the three months ended March 31, 2024 vs $4.7 million in the prior year. This net cash usage of $0.3 million was primarily due to the net loss of $1.9 million, an increase in accounts receivable of $0.3 million, a reduction of accrued expenses of $0.2 million driven by payment of 2023 bonuses, offset by an increase in accounts payable of $0.8 million, a decrease in inventory of $0.3 million, and non-cash items including stock-based compensation expense of $0.7 million, and depreciation and amortization expense of $0.2 million.

Current wording

Net cash used in operating activities was $0.3 million for the six months ended June 30, 2024 vs $4.8 million in the prior year. This net cash usage of $0.3 million was primarily due to the net loss of $2.9 million and an increase in accounts receivable of $1.8 million, which was mostly offset by decreases in inventory of $0.9 million, decreases in pre-paid expenses of $0.8 million, and increases in accounts payable and accruals of $1.0 million. Additional offsets to the net loss were non-cash items including stock-based compensation expense of $1.3 million, and depreciation and amortization expense of $0.4 million.

Previous wording

Net cash used in operating activities of $4.7 million for the three months ended March 31, 2023 was primarily due to the net loss of $2.4 million, working capital changes which included an increase in accounts receivable of $0.6 million, an increase in inventory of $0.2 million, a decrease in accrued expenses of $1.3 million, a decrease in accounts payable of $0.9 million, and a decrease in prepaid expense of $0.3 million. Further contributing was an increase in deferred tax assets of $0.6 million. Offsetting these were primarily non-cash charges for stock-based compensation of $0.9 million, depreciation and amortization of $0.2 million, and a loss on disposal of fixed assets of $0.1 million.

Current wording

Net cash used in operating activities was $4.8 million for the six months ended June 30, 2023. This net cash usage was primarily due to the net loss of $4.9 million, plus cash flows used to fund a decrease in accrued expenses of $1.7 million, primarily from the payment of 2022 employee bonuses, and a decrease in accounts payable of $0.8 million, offset by cash flows generated from a decrease in inventory of $1.1 million, an increase in accounts receivable of $0.2 million and a decrease in prepaid expense of $0.7 million. Further contributing to this change were non-cash items including an increase in deferred tax assets of $1.2 million offset by stock-based compensation expense of $1.7 million, depreciation and amortization expense of $0.4 million and a loss on disposal of fixed assets of $0.1 million.

Previous wording

Net cash used in investing activities of $0.1 million for the three months ending March 31, 2024, was for capital expenditures for research and development and manufacturing equipment.

Current wording

Net cash used in investing activities of $0.3 million for the six months ending June 30, 2024, was for capital expenditures for research and development and manufacturing equipment.

Previous wording

Net cash used in investing activities of $0.3 million for the three months ending March 31, 2023, was for capital expenditures for research and development and office equipment.

Current wording

Net cash used in investing activities of $0.4 million for the six months ending June 30, 2023, was for capital expenditures for research and development and office equipment.

Previous wording

Net cash used in financing activities for the three months ended March 31, 2024 was $0.2 million, due to payments on our note payable for insurance premium financing.

Current wording

Net cash used in financing activities of $0.4 million for the six months ended June 30, 2024 was due to payments on our note payable for insurance premium financing.

Previous wording

Net cash used in financing activities for the three months ended March 31, 2023, was $0.2 million, due to payments on our note payable for insurance premium financing.

Current wording

Net cash used in financing activities of $0.5 million for the six months ended June 30, 2023, was due to payments on our note payable for insurance premium financing as well as for payments on our finance leases.