KORU Medical Systems Announces Financial Results for Third Quarter 2020

Rhea-AI Summary

KORU Medical Systems (NASDAQ: KRMD) reported Q3 2020 financial results, revealing net sales of $6.1 million, a decrease from $6.6 million in Q3 2019. Despite this, net sales for the first nine months increased 19% year-over-year. Gross profit also declined to $3.9 million, reflecting a 64.8% margin. Net income fell to $0.2 million, or $0.01 per share, down from $0.7 million in the previous year. The company retains a solid cash position of $32.4 million. KORU is optimistic about upcoming product launches and clinical trials that could expand its market presence.

Positive

• Net sales increased 19% year-over-year for the first nine months of 2020.
• Strong cash position of $32.4 million as of September 30, 2020.

Negative

• Q3 2020 net sales declined to $6.1 million from $6.6 million in Q3 2019.
• Gross profit decreased to $3.9 million, reflecting a margin drop from 66.2% to 64.8%.
• Net income fell to $0.2 million from $0.7 million year-over-year.

CHESTER, N.Y.--(BUSINESS WIRE)--Repro Med Systems, Inc. dba KORU Medical Systems (NASDAQ: KRMD) (“KORU Medical” or the “Company”) today announced financial results for the third quarter ended September 30, 2020 (“Q3 2020”).

Q3 2020 Overview

“The strength and resiliency of our core business, which provides our Freedom Integrated Infusion System to individuals with Primary Immune Deficiency Disease and Chronic Inflammatory Demyelinating Polyneuropathy, is helping us navigate the challenges of the COVID-19 pandemic. Our total net sales declined in Q3 2020 primarily attributable to lower clinical trial activity and allowances associated with U.S. sales. Net sales for the first nine months of 2020 rose 19% from the same period last year and volume growth continued within our business.”

Mr. Pettigrew continued, “We are continuing to manage our operations to deliver growth by capitalizing on multiple, sustainable long-term growth drivers. We remain confident in the strength of our core business, which is predominantly comprised of recurring revenues and excludes clinical trials. Our core business is likely to continue to grow given the heightened awareness of PIDD and CIDP diseases, proven and effective immunoglobulin therapy, the benefits of at home treatment, growing addressable patient populations, and an increasing focus by pharmaceutical manufacturers to develop subcutaneous drugs that allow individuals to self-administer these therapies at home. We believe we remain well-positioned to further capture clinical trials sales, support expanded drug indications for existing therapies, and pursue international expansion as the effects of the pandemic subside. Our business fundamentals and cash position remain strong.”

Update on Strategic Growth Initiatives

Hematology Drug Launch and Additional Clinical Trial Participation

The Freedom System was utilized in a recently completed Phase III clinical trial for a subcutaneous hematology drug. This drug is aimed at treating paroxysmal nocturnal hemoglobinuria (PNH), a rare, chronic blood disorder that affects over 15,000 patients worldwide. KORU Medical expects that this new drug will launch in 2021 and that the Freedom System will be the preferred delivery method. The Company also believes that the Freedom System will be utilized in several additional upcoming clinical trials with this same drug focused on expanding indications and disease states for larger patient populations.

“The new PNH drug is progressing towards its planned launch in 2021 and is currently being trialed in other indications using the Freedom System. Relationships such as this are an essential part of our strategic plan as this PNH indication alone has the potential to significantly expand our core business,” said Mr. Pettigrew.

Q3 2020 Financial Results Summary

Net sales were $6.1 million in Q3 2020 compared to $6.6 million in last year’s third quarter.

Gross profit in Q3 2020 was $3.9 million, or 64.8% of net sales, compared to $4.4 million, or 66.2% of net sales, in Q3 2019, reflecting lower net sales.

Total operating expenses in Q3 2020 remained stable at $3.6 million from Q3 2019.

Net income for Q3 2020 was $0.2 million, or $0.01 per share, compared to net income in Q3 2019 of $0.7 million, or $0.02 per share.

Q3 2020 Adjusted EBITDA was $0.9 million compared to Adjusted EBITDA of $2.2 million in Q3 2019. Adjusted EBITDA excludes from net income / (loss): income tax expense, depreciation and amortization, interest income, net, discontinued product expense, litigation expenses including stock-based settlement expense, manufacturing initiative expenses, and stock option expense.

Balance Sheet Summary

Cash and cash equivalents as of September 30, 2020 totaled $32.4 million, with the increase from December 31, 2019 reflecting $26.5 million of net proceeds from the capital raise completed in Q2 2020.

Non-GAAP Measures

This press release includes the non-GAAP financial measure of “Adjusted EBITDA” that is not in accordance with, nor an alternate to, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material effect on our reported results and, therefore, should not be relied upon as the sole financial measures to evaluate our financial results. The non-GAAP financial measure is meant to supplement, and to be viewed in conjunction with, GAAP financial results. A reconciliation of our non-GAAP measure is included in an attachment to this press release.

Conference Call

Management will host a conference call on Wednesday, November 4, 2020 at 9:00 am ET to discuss the results and business activities. Interested parties may participate in the call by dialing:

• (877) 407-9753 (Domestic) or
• (201) 493-6739 (International)

Webcast registration: Click Here

Following the live call, a replay will be available for six months on the Company's website, www.korumedical.com under "Investor Relations."

About KORU Medical Systems

KORU Medical Systems develops, manufactures, and commercializes innovative and easy-to-use specialty infusion solutions that improve quality of life for patients around the world. The FREEDOM Syringe Infusion System currently includes the FREEDOM60^® and FreedomEdge^® Syringe Infusion Drivers, Precision Flow Rate Tubing^™ and HIgH-Flo Subcutaneous Safety Needle Sets^™. These devices are used for infusions administered in the home and alternate care settings. For more information, please visit www.korumedical.com.

Forward-looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by words such as “will,” “expects,” “likely,” “look forward,” “planned,” “potential,” and “believe.” Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, such as uncertainties associated with COVID-19, future operating results, Food and Drug Administration regulations, 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 the research and development effort, expanding the market of FREEDOM60® demand in the SCIg market, availability of sufficient capital if or when needed, dependence on key personnel, and the impact of recent accounting pronouncements; and those risks and uncertainties included under the captions “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which are on file with the SEC and are available on our website at www.korumedical.com/investors and on the SEC website at www.sec.gov. All information provided in this release and in the attachments is as of November 3, 2020. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to us on the date hereof. We undertake no duty to update this information unless required by law.

REPRO MED SYSTEMS, INC.
BALANCE SHEETS
(Unaudited)
		September 30,				December 31,
		2020				2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	32,433,811			$	5,870,929
Accounts receivable less allowance for doubtful accounts of $24,676 and $32,645 at September 30, 2020 and December 31, 2019, respectively			3,736,596				3,234,521
Inventory			5,633,139				2,388,477
Prepaid expenses			844,496				387,396
TOTAL CURRENT ASSETS			42,648,042				11,881,323
Property and equipment, net			1,260,675				611,846
Patents, net of accumulated amortization of $335,686 and $288,967 at September 30, 2020 and December 31, 2019, respectively			884,635				807,135
Right of use assets, net			271,679				373,734
Deferred tax asset			349,609				188,241
Other assets			19,812				19,582
TOTAL ASSETS		$	45,434,452			$	13,881,861
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable			1,363,070				572,656
Accrued expenses			3,051,582				1,296,612
Accrued payroll and related taxes			440,144				190,265
Accrued tax liability			363,158				204,572
Finance lease liability – current			3,026				5,296
Operating lease liability – current			140,450				136,888
TOTAL CURRENT LIABILITIES			5,361,430				2,406,289
Finance lease liability, net of current portion			414				2,646
Operating lease liability, net of current portion			131,229				236,846
TOTAL LIABILITIES			5,493,073				2,645,781
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value; 75,000,000 shares authorized, 46,671,807 and 42,239,788 shares issued, 43,934,576 and 39,502,557 shares outstanding at September 30, 2020 and December 31, 2019, respectively			466,718				422,398
Additional paid-in capital			35,331,483				6,293,069
Treasury stock, 2,737,231 shares at September 30, 2020 and December 31, 2019, respectively, at cost			(344,204	)			(344,204	)
Retained earnings			4,487,382				4,864,817
TOTAL STOCKHOLDERS’ EQUITY			39,941,379				11,236,080
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	45,434,452			$	13,881,861

REPRO MED SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
		Three Months Ended									Nine Months Ended
		September 30,									September 30,
		2020				2019				2020							2019
NET SALES		$	6,080,315			$	6,617,397			$		20,119,228					$	16,940,487
Cost of goods sold			2,139,592				2,234,489					7,480,415						6,033,961
Gross Profit			3,940,723				4,382,908					12,638,813						10,906,526
OPERATING EXPENSES
Selling, general and administrative			3,075,169				2,441,381					9,039,980						6,976,684
Litigation			675				864,009					2,446,747						2,481,471
Research and development			390,416				170,260					944,637						450,454
Depreciation and amortization			115,637				82,774					297,801						252,594
Total Operating Expenses			3,581,897				3,558,424					12,729,165						10,161,203
Net Operating Profit/(Loss)			358,826				824,484					(90,352	)					745,323
Non-Operating Income/(Expense)
Gain/(Loss) on currency exchange			1,927				(9,358	)				(11,164	)					(20,283			)
Gain on disposal of fixed assets, net			22,113				—					16,591						49,740
Interest income, net			9,662				23,368					23,690						59,091
TOTAL OTHER INCOME/(EXPENSE)			33,702				14,010					29,117						88,548
INCOME/(LOSS) BEFORE INCOME TAXES			392,528				838,494					(61,235	)					833,871
Income Tax Expense			(143,353	)			(186,681	)				(316,200	)					(189,265			)
NET INCOME/(LOSS)		$	249,175			$	651,813			$		(377,435	)				$	644,606
NET INCOME/(LOSS) PER SHARE
Basic		$	0.01			$	0.02			$		(0.01	)				$	0.02
Diluted		$	0.01			$	0.02			$		(0.01	)				$	0.02
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic			43,914,542				39,022,298					41,326,815						38,534,021
Diluted			44,119,511				39,298,408					41,326,815						38,734,083

REPRO MED SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
		Nine Months Ended
		September 30,
		2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss)/Income		$	(377,435	)		$	644,606
Adjustments to reconcile net (loss)/income to net cash provided by/(used in) operating activities:
Stock-based compensation expense			1,191,146				897,300
Stock-based litigation settlement expense			1,285,102				—
Depreciation and amortization			297,801				252,594
Deferred capital gain - building lease			—				(3,763	)
Deferred taxes			(161,368	)			134,563
Gain on disposal of fixed assets			(16,591	)			(49,740	)
Changes in operating assets and liabilities:
Increase in accounts receivable			(502,075	)			(2,120,780)
Increase in inventory			(3,244,662	)			(634,803)
Increase in prepaid expenses and other assets			(457,330	)			(206,560	)
Increase in accounts payable			790,414				421,479
Increase/(Decrease) in accrued payroll and related taxes			249,879				(310,355)
Increase in accrued expenses			1,754,970				490,053
Increase/(Decrease) in accrued tax liability			158,586				(16,608)
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES			968,437				(502,014)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment			(908,323	)			(158,193)
Purchases of patents			(124,216	)			(188,274)
Proceeds from disposal of property and equipment			25,000				217,821
Proceeds from certificate of deposit			—				1,517,927
NET CASH (USED IN)/PROVIDED BY INVESTING ACTIVITIES			(1,007,539	)			1,389,281
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of equity			26,606,486				508,900
Payments for cancelled shares			—				(2,820	)
Borrowings from indebtedness			4,976,508				—
Payments on indebtedness			(4,976,508)				—
Payments on finance lease liability			(4,502	)			(3,122	)
NET CASH PROVIDED BY FINANCING ACTIVITIES			26,601,984				502,958
NET INCREASE IN CASH AND CASH EQUIVALENTS			26,562,882				1,390,225
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			5,870,929				3,738,803
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	32,433,811			$	5,129,028
Supplemental Information
Cash paid during the periods for:
Interest		$	27,698			$	280
Income taxes		$	318,983			$	103,465

		Three Months Ended								Nine Months Ended
Reconciliation of GAAP Net Income/(Loss)		September 30,								September 30,
to Non-GAAP Adjusted EBITDA:		2020				2019				2020				2019
GAAP Net Income/(Loss)		$	249,175			$	651,813			$	(377,435	)		$	644,606
Income Tax Expense			143,353				186,681				316,200				189,265
Depreciation and Amortization			115,637				82,774				297,801				252,594
Interest Income, Net			(9,662	)			(23,368	)			(23,690	)			(59,091	)
Reorganization Charges			—				—				—				354,926
Discontinued Product Expense			(6,659	)			—				71,318				—
Litigation*			675				864,009				2,446,747				2,481,471
Manufacturing Initiative Expenses			59,045				120,386				194,804				120,386
Stock Option Expense			346,323				324,135				1,011,140				640,775
Non-GAAP Adjusted EBITDA		$	897,887			$	2,206,430			$	3,936,885			$	4,624,932
*For the nine months ended September 30, 2020, litigation consisted of a $2.2 million non-cash, stock-based settlement expense.