Business Wire | Aug 4, 2020 05:34PM EDT

KORU Medical Systems Announces 2020 Second Quarter Financial Results

Aug. 04, 2020

CHESTER, N.Y.--(BUSINESS WIRE)--Aug. 04, 2020--Repro Med Systems, Inc. dba KORU Medical Systems (NASDAQ: KRMD) ("KORU Medical" or the "Company") today announced financial results for the second quarter ended June 30, 2020 ("Q2 2020").

"We reported a strong Q2 2020, highlighted by a quarterly net sales record of $7.7 million," said Don Pettigrew, President and CEO. "During the second quarter, we completed a successful public offering, settled our outstanding litigation with our competitor, were added to the broad market Russell 3000(r) Index, the Russell 2000(r) Index, and Russell Microcap(r) Index, and continued to execute against our long-term growth objectives, including success with our strategy to broaden our pharmaceutical industry relationships and pursue clinical trial opportunities. I am extremely proud of the entire KORU Medical team for navigating us through the COVID-19 pandemic and embracing their designation as essential workers supporting the thousands of chronically ill patients who rely on our products.

"We believe that the awareness and diagnosis of Primary Immunodeficiency Diseases and Chronic Inflammatory Demyelinating Polyneuropathy - our primary end markets - is continuing to increase. We believe that COVID-19-related health concerns are driving the ongoing shift from hospital and clinic-based IVIg treatments to home-based subcutaneous Ig therapy, and that the acceleration of this trend is supporting the adoption of KORU Medical's mechanical, easy-to-use Freedom Integrated Infusion System which allows patients with immune diseases and other chronic conditions to self-administer their Ig drug therapy at home. The growing preference for at-home treatment is also, in our view, encouraging pharmaceutical companies to continue to develop subcutaneous Ig therapies and new drugs that can be administered at home."

Q2 2020 Overview

Net sales increased 44.1% to $7.7 million in Q2 2020 from $5.3 million in last year's second quarter, with growth in all product categories (pumps, needle sets, and tubing). We believe this growth was primarily driven by continued demand increases that included clinical trials, as well as increased purchasing to support the trend towards at-home infusion therapy and in response to the uncertainties created by COVID-19.

Gross profit in Q2 2020 rose 41.3% to $4.9 million from $3.5 million in Q2 2019, primarily due to increased sales volume. Gross margin was 63.7% in Q2 2020 as compared to 65.0% in Q2 2019, mostly due to an increase in overtime costs related to COVID-19 absenteeism. Gross margin was 65.4% when adjusted for overtime.

Selling, general & administrative expenses were $3.2 million, or 41.5% of net sales, compared to $2.1 million, or 38.3% of net sales in Q2 2019. The increase was due primarily to the impact of new hires in the second half of last year, severance, a bonus for employee service during the COVID-19 pandemic, increased consulting, distributor fees and other miscellaneous administrative costs, partially offset by lower trade show and travel expenses due to COVID-19 related travel restrictions.

Higher litigation costs in Q2 2020 consisted of a $2.2 million non-cash, stock-based expense associated with the negotiation of and entry into a litigation settlement agreement with a competitor in May 2020. The Company expects expenses related to the competitor litigation will discontinue because of the settlement. Litigation expenses in Q2 2019 were $1.1 million, attributable to the competitor litigation.

Net loss for Q2 2020 was $(1.1) million, or $(0.03) per share, and included the one-time, non-cash litigation settlement expense of $2.2 million. Net income in Q2 2019 was $0.1 million, or $0.00 per share.

Q2 2020 Adjusted EBITDA rose 18.1% to $1.8 million from Adjusted EBITDA of $1.5 million in Q2 2019. Adjusted EBITDA excludes from net income: tax expense, depreciation and amortization, interest income, net, discontinued product expense, litigation costs that consisted of a $2.2 million non-cash, stock-based settlement expense, manufacturing initiative expenses, and stock option expense.

Balance Sheet, Liquidity Initiatives and Credit

Cash and equivalents as of June 30, 2020 totaled $38.1 million, a $32.2 million increase from December 31, 2019. Substantially all of the increase was due to the $26.5 million of net proceeds from the recent capital raise and a $3.5 million draw against the Company's line of credit.

"This fresh capital allows us to fund our growth initiatives, including commercial expansion, increased clinical trial participation, gross margin enhancement, and new product innovation," concluded Mr. Pettigrew.

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, August 5, 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(r) and FreedomEdge(r) Syringe Infusion Drivers, Precision Flow Rate Tubing(tm) and HIgH-Flo Subcutaneous Safety Needle Sets(tm). 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," "should," "believe" and "in our view." 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, 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, as amended, and our most recent Quarterly Report on Form 10-Q for the quarter ended March 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. In addition, there are risks and uncertainties with respect to the impact of COVID-19 on our supply chain, operations, and financial condition. All information provided in this release and in the attachments is as of August 4, 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



June 30, December 31, 2020

(Unaudited) 2019

ASSETS



CURRENT ASSETS

Cash and cash equivalents $ 38,129,349 $ 5,870,929

Accounts receivable less allowance for doubtfulaccounts of $32,645 at 2,965,902 3,234,521 June 30, 2020 and December 31, 2019

Inventory 3,667,288 2,388,477

Prepaid expenses 543,482 387,396

TOTAL CURRENT ASSETS 45,306,021 11,881,323

Property and equipment, net 818,064 611,846

Patents, net of accumulated amortization of$319,120 and $288,967 at 926,504 807,135 June 30, 2020 and December 31, 2019,respectively

Right of use assets, net 306,101 373,734

Deferred tax asset 334,011 188,241

Other assets 19,812 19,582

TOTAL ASSETS $ 47,710,513 $ 13,881,861



LIABILITIES AND STOCKHOLDERS' EQUITY



CURRENT LIABILITIES

Line of credit payable $ 3,500,000 $ -

Accounts payable 920,006 572,656

Accrued expenses 2,686,200 1,296,612

Accrued payroll and related taxes 523,537 190,265

Accrued tax liability 523,190 204,572

Finance lease liability - current 3,195 5,296

Operating lease liability - current 139,618 136,888

TOTAL CURRENT LIABILITIES 8,295,746 2,406,289

Finance lease liability, net of current portion 1,030 2,646

Operating lease liability, net of current 166,483 236,846 portion

TOTAL LIABILITIES 8,463,259 2,645,781



STOCKHOLDERS' EQUITY

Common stock, $0.01 par value; 75,000,000shares authorized,46,640,120 and 42,239,788 shares issued, 466,401 422,398 43,902,889 and 39,502,557shares outstanding at June 30, 2020 andDecember 31, 2019, respectively

Additional paid-in capital 34,886,850 6,293,069

Retained earnings 4,238,207 4,864,817

39,591,458 11,580,284

Less: Treasury stock, 2,737,231 shares at June30, 2020 and December (344,204 ) (344,204 )31, 2019, respectively, at cost

TOTAL STOCKHOLDERS' EQUITY 39,247,254 11,236,080

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 47,710,513 $ 13,881,861

REPRO MED SYSTEMS, INC.

STATEMENTS OF OPERATIONS (UNAUDITED)



For the For the Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019



NET SALES $ 7,708,904 $ 5,348,812 $ 14,038,913 $ 10,323,090

Cost of goods 2,799,024 1,873,148 5,340,823 3,799,472 sold

Gross Profit 4,909,880 3,475,664 8,698,090 6,523,618



OPERATING EXPENSES

Selling, generaland 3,201,831 2,050,435 5,964,811 4,535,303 administrative

Litigation 2,346,914 1,124,947 2,446,072 1,617,462

Research and 298,196 178,235 554,221 280,194 development

Depreciation and 94,940 86,169 182,164 169,820 amortization

Total Operating 5,941,881 3,439,786 9,147,268 6,602,779 Expenses



Net Operating (1,032,001 ) 35,878 (449,178 ) (79,161 )(Loss)/Profit



Non-Operating (Expense)/Income

Loss on currency (2,594 ) (1,235 ) (13,091 ) (10,925 )exchange

(Loss)/Gain ondisposal of fixed (5,522 ) 49,980 (5,522 ) 49,740 asset, net

Interest, net and (5,002 ) 18,243 14,028 35,723 other income, net

TOTAL OTHER (13,118 ) 66,988 (4,585 ) 74,538 (EXPENSE)/INCOME



(LOSS)/INCOME (1,045,119 ) 102,866 (453,763 ) (4,623 )BEFORE TAXES



Income Tax (30,919 ) (24,683 ) (172,847 ) (2,584 )Expense



NET (LOSS)/INCOME $ (1,076,038 ) $ 78,183 $ (626,610 ) $ (7,207 )



NET (LOSS)/INCOME PER SHARE



Basic $ (0.03 ) $ 0.00 $ (0.02 ) $ 0.00

Diluted $ (0.03 ) $ 0.00 $ (0.02 ) $ 0.00



WEIGHTED AVERAGENUMBER OF COMMON SHARESOUTSTANDING



Basic 40,361,924 38,353,000 40,018,559 38,279,718

Diluted 40,524,754 39,299,800 40,201,134 39,219,752

REPRO MED SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)



For the Six Months Ended

June 30,

2020 2019



CASH FLOWS FROM OPERATING ACTIVITIES

Net Loss $ (626,610 ) $ (7,207 )

Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:

Stock based compensation expense 784,821 529,538

Stock based litigation settlement expense 1,285,102 -

Depreciation and amortization 182,164 169,820

Deferred capital gain - building lease - (3,763 )

Deferred taxes (145,770 ) 66,494

Loss/(Gain) on disposal of fixed asset 5,522 (49,740 )

Changes in operating assets and liabilities:

Decrease/(Increase) in accounts receivable 268,619 (1,867,342 )

Increase in inventory (1,278,811 ) (467,706 )

(Increase)/Decrease in prepaid expense and (156,316 ) 44,874 other assets

Increase in accounts payable 347,350 76,882

Increase/(Decrease) in accrued payroll and 333,272 (249,730 )related taxes

Increase in accrued expense 1,389,588 346,181

Increase/(Decrease) in accrued tax liability 318,618 (72,210 )

NET CASH PROVIDED BY/(USED IN) OPERATING 2,707,549 (1,483,909 )ACTIVITIES



CASH FLOWS FROM INVESTING ACTIVITIES

Payments for capital expenditures (363,750 ) (67,079 )

Payments for patents (149,523 ) (136,182 )

Proceeds on disposal of fixed asset - 217,821

Proceeds from certificate of deposit - 1,517,927

NET CASH (USED IN)/PROVIDED BY INVESTING (513,273 ) 1,532,487 ACTIVITIES



CASH FLOWS FROM FINANCING ACTIVITIES

Line of credit advance 3,500,000 -

Issuance of equity 26,567,861 24,700

Payment for cancelled shares - (2,820 )

Finance lease (3,717 ) (2,069 )

NET CASH PROVIDED BY FINANCING ACTIVITIES 30,064,144 19,811



NET INCREASE IN CASH AND CASH EQUIVALENTS 32,258,420 68,389

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,870,929 3,738,803

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 38,129,349 $ 3,807,192



Supplemental Information

Cash paid during the periods for:

Interest $ 13,554 $ 233

Taxes $ - $ -



NON-CASH FINANCING AND INVESTING ACTIVITIES

Issuance of common stock as compensation $ 120,004 $ 212,898



Three Months Ended Six Months Ended

Reconciliationof GAAP Net June 30, June 30,(Loss)/Income

to Non-GAAPAdjusted 2020 2019 2020 2019EBITDA:

GAAP Net (Loss) $ (1,076,038 ) $ 78,183 $ (626,610 ) $ (7,207 )/Income

Tax Expense 30,919 24,683 172,847 2,584

Depreciation/ 94,940 86,169 182,164 169,820 Amortization

InterestExpense/ 5,002 (18,243 ) (14,028 ) (35,723 )(Income), Net

Reorganization - - - 354,926 Charges

DiscontinuedProduct (31,581 ) - 77,977 - Expenses

Litigation* 2,346,914 1,124,947 2,446,072 1,617,462

ManufacturingInitiative 25,957 - 135,759 - Expenses

Stock Option 363,851 194,765 664,817 316,640 Expense

Non-GAAP $ 1,759,964 $ 1,490,504 $ 3,038,998 $ 2,418,502 Adjusted EBITDA



*For the three and six months ended June 30, 2020, litigation costs consisted of a $2.2 million non-cash, stock-based settlement expense.

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