UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission file number 0-12305
KORU MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
100 Corporate Drive, Mahwah, New Jersey 07430
(Address of principal executive offices) (Zip Code)
(845)-469-2042
Registrant’s telephone number, including area
code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
common stock, $0.01 par value KRMD The Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes ☐No☒
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b)
of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate
by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously
issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements
that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during
the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes ☐No☒
Based on the closing sales price of June 30, 2022, the aggregate market
value of the voting and nonvoting common equity held by non-affiliates of the registrant was $71,872,771.
As of March 8, 2023, 45,519,164 shares of common stock, $0.01 par value
per share, were outstanding, which excludes 3,420,502 shares of Treasury Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement for the 2023 Annual
Meeting of Shareholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.
Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended
December 31, 2022.
INDEX TO FORM 10-K
Page
PART I
Item 1. Business 1
Item 1A. Risk Factors 8
Item 1B. Unresolved Staff Comments 24
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Mine Safety Disclosures 24
PART II
Item 6. Selected Financial Data 24
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 29
Item 8. Financial Statements and Supplementary Data 29
Item 9A. Controls and Procedures 47
Item 9B. Other Information 47
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 47
PART III
Item 10. Directors, Executive Officers, and Corporate Governance 48
Item 11. Executive Compensation 48
Item 14. Principal Accountant Fees and Services 48
PART IV
Item 15. Exhibits and Financial Statement Schedules 48
Signatures 51
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PART I
Throughout this report, the “Company,” “KORU Medical,”
“KORU,” “we,” “us” or “our” refer to KORU Medical Systems, Inc.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements can be identified by words such as: “believe,”
“plan,” “goal,” “intend,” “seek,” “expect,” “will,” and
similar references to future periods. Examples of forward-looking statements include, among others, statements we make under
“Our Strategy” in Business under Item 1 of this Form 10-K and “Liquidity and Capital Resources” in
Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7 of this Form 10-K, and
statements regarding completion of our move to the newly leased facility including continuity of product supply, compliance with EU
MDR, transition of our outsourced manufacturing, 2023 expenses, needs for additional capital, capital investments, inventory levels,
plans for expansion of our share position and products, and increase in patient SCIg prescriptions. Forward-looking statements are
neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations,
and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the
economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent
uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control.
Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.
Therefore, readers should not rely on any of these forward-looking statements.
Important factors that could cause our actual results and financial condition
to differ materially from those indicated in the forward-looking statements include, among others, those discussed in this Annual Report
on Form 10-K, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A, and those discussed in other
documents we file with the Securities and Exchange Commission (“SEC”).
Any forward-looking statement made by us in this Annual Report on Form
10-K is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no
obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a
result of new information, future developments or otherwise.
ITEM 1. BUSINESS
OUR BUSINESS
KORU Medical develops, manufactures and markets proprietary portable
and innovative medical devices primarily for the subcutaneous drug delivery market as governed by the United States Food and Drug Administration
(the “FDA”) quality and regulatory system and international standards for quality system management. Our focus is primarily
concentrated on our mechanical infusion products, the FREEDOM Infusion Systems (which we refer to as the “FREEDOM System”
when used with one or more accessories), which include the FREEDOM60® Syringe Driver, the FreedomEdge® Syringe Driver, HIgH-Flo
Subcutaneous Safety Needle SetsTM and Precision Flow Rate TubingTM.
Our revenues are derived from three business sources: (i) domestic
core, (ii) international core, and (iii) novel therapies. Our core domestic and international revenues consist of sales of
our syringe drivers, tubing and needles (“Product Revenue”) for the delivery of subcutaneous drugs that are FDA cleared
for use with the Freedom Infusion Systems, with the primary delivery for immunoglobulin to treat Primary Immunodeficiency Diseases
(“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”). Novel therapies consist of Product
Revenue 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 (“NRE”) revenues (including testing and
registration services) received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and
commercial use.
OUR MISSION
Our mission is to improve the quality of life of patients around the world
by delivering innovative, effective, and easy-to-use drug delivery systems that can be used at home or alternate site settings, for patient
self-administration of drug therapy.
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OUR STRATEGY
We plan to become a leading provider of solutions for subcutaneous large-volume
infusions defined as greater than 10ml. We intend to accomplish this objective by increasing penetration of our core subcutaneous immunoglobulin
(“SCIg”) market and extending into new subcutaneous drug therapies.
We have identified multiple factors we believe are driving growth of the
SCIg market. These include:
We intend to maintain and extend our leadership position in the SCIg market
through clinical and product innovation and commercial excellence. By improving our products, establishing thought leadership in subcutaneous
therapy, partnering with drug manufacturers, expanding geographically, and executing commercially, we intend to increase our overall global
share position and the number of patients prescribed SCIg over intravenous Ig.
Furthermore, we plan to expand into new therapies outside of SCIg. We estimate
that at least 100 large-volume drugs are in clinical development utilizing subcutaneous infusion. The pipeline is driven by the need to
deliver high therapeutic doses, difficulty in formulating large molecules into small volumes, nursing shortage, pharmaceutical companies
shifting development programs toward at-home subcutaneous therapy, and other factors. Biopharmaceutical manufacturers seek device partners
during the drug development process. We intend to partner with them during clinical development—generating services revenues to
prepare and customize our products for clinical use and regulatory clearance, as well as, product revenues post commercialization.
We believe our track record of regulatory clearance and successful patient use, combined with our channel access,
position KORU to both maximize our growth in the core SCIg market and expand into new therapeutic areas.
OUR PRODUCTS
KORU’s infusion devices work together as a system to deliver life-saving
therapies to patients with chronic illnesses, such as PIDD and CIDP. The FREEDOM System comprises the FREEDOM60 Syringe Driver (standard
60/50ml syringe compatible) and FreedomEdge Syringe Driver (standard 30ml and 20ml syringe and prefilled syringe compatible), HIgH-Flo
Subcutaneous Safety Needle Sets and Precision Flow Rate Tubing. The systems are portable, easy to operate, maintenance free and
do not require batteries or electricity. The FREEDOM System operates at a lower pressure than an electrical, volumetric pump and maintains
a balance between what a patient’s subcutaneous tissues can tolerate what the system delivers.
Our FREEDOM System is cleared for the most on-label subcutaneous
indications including specific FDA clearance for: delivery of specific medications through subcutaneous and intravenous routes,
including specific clearance for leading immune globulins Cutaquig ®, Cuvitru®, Hizentra®, Xembify, Empaveli®
(branded Aspaveli® outside the United States), Gammagard Liquid®, and a variety of antibiotics. The FREEDOM System is the
only infusion system specifically cleared for SCIg delivery with a prefilled syringe, the Hizentra® 20ml prefilled syringe.
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Ambulatory infusion systems are most prevalent in the home care and alternate
site markets. The SCIg products delivered by the FREEDOM System are indicated for a variety of conditions, including PIDD and CIDP
in the United States and PIDD, CIDP and Secondary Immunodeficiency Disease (“SIDD”) in Europe. Empaveli® is indicated
for Paroxysmal Nocturnal Hemoglobinuria (“PNH”). The use of the FREEDOM System for SCIg drug delivery continues to increase,
and it remains the market leading delivery system in the U.S. for these treatments. In recent years Hizentra® has received an
expanded indication for treatment of CIDP in the United States and multiple SCIg drugs have received indications for CIDP and SID outside
of the United States. It is expected that patient access to SCIg will expand as new drugs are developed, existing drugs are approved and/or
marketed in new countries, and existing drugs receive new indications.
HIgH-Flo Subcutaneous Safety Needle Sets are an important element of the
FREEDOM System. The needle sets are available in 26- and 24-gauge sizes and feature unique design elements specific to subcutaneous self-administration.
One such feature includes a back-cut needle designed for more comfort and less tissue damage with flexible wings to minimize patient
discomfort over prior needle set offerings.
Precision Flow Rate Tubing is designed for repeatable flow rates without
allowing unrestricted flow. The tubing regulates the flow rate and infusion time for various applications when used with the FREEDOM
System. Each tubing set provides a different level of flow restriction and consistently delivers medication with low residual volume
to minimize drug waste.
SALES AND DISTRIBUTION
The FREEDOM System is sold through both direct sales and medical device
distributors to pharmaceutical companies, specialty pharmacy customers and home infusion providers. Our products are sold principally
through a small number of distributors so our specialty pharmacy customers receive the benefit of remote inventory management and one-stop
shopping. We sell the majority of our products through three distributors in the U.S. and two distributors outside the U.S. As
of December 31, 2022, these five distributors comprised approximately 72% of our net revenues with one of our U.S. distributors contributing
approximately 41%.
Specialty pharmacies, home infusion providers, and distributors are our
primary sales contacts, although we provide education and training materials to clinicians, patients and patient advocates both in the
field and online.
MANUFACTURING AND RAW MATERIALS
We currently perform product assembly, calibration, pre- and post-assembly
quality control inspection and testing, and final packaging at our Chester, NY facility and have been transitioning those activities to
our leased facility in Mahwah, NJ. We expect to transition all remaining activities to Mahwah, NJ in March 2023. We have entered
into an agreement with Command Medical Products, Inc. (“Command”), to manufacture and supply substantially all of the Company’s
subassemblies, needle sets and tubing products for supply continuity and cost savings. We expect the transition to Command to be completed
no later than the second quarter of 2023.
Our ability to meet customer demand depends, in part, on our ability to
obtain timely and adequate delivery of components for our products. All of the components that go into the manufacturing of our products
and accessories are sourced from third-party suppliers on a single source basis. The Company uses single-source suppliers in part due
to governmental approval and validation requirements. A change in supplier, or the use of multiple suppliers of the same materials, often
would necessitate additional approvals and validations, which the Company seeks to avoid unless and until the need arises. The Company
does not have any contracts with suppliers that impose material binding obligations on the Company or provide the Company with any material
rights or benefits, other than the agreement with Command.
RESEARCH AND DEVELOPMENT
We recognize the importance of innovation to our long-term success and
are committed to research and new product development activities. Our product development team along with outside engineering resources
are engaged in continuously improving existing product performance and researching new product opportunities to enhance our product portfolio.
We spent $5.0 million and $2.5 million on research and development for the years ended December 31, 2022 and 2021, respectively.
We intend to make additional investments in research and development over the next twelve months to support adding research and
development capability to develop a “next-generation” infusion pump and consumable system.
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REGULATORY
Our medical devices and technologies, as well as our business activities,
are subject to a complex set of regulations and rigorous enforcement, principally by the FDA, and numerous other federal, state, and non-U.S.
governmental authorities. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the
development, testing, manufacturing, labeling, marketing and distribution of our products.
The FDA regulates, among other things, the research, development, testing,
manufacturing, approval, labeling, storage, recordkeeping, advertising, promotion, marketing, distribution, post approval monitoring and
reporting, import and export of medical devices in the U.S. to assure the safety and effectiveness of medical products for their intended
use. Thus, both before and after a product is commercially released, we have ongoing responsibilities under the FDA. For instance,
all medical devices marketed in the U.S. must be manufactured in accordance with the FDA’s quality system regulations (“QSRs”).
Accordingly, our facility and procedures and those of our applicable suppliers are also subject to periodic inspections by the FDA
to determine compliance with applicable laws and regulations. The Federal Trade Commission also regulates the advertising of our
products. Further, we are subject to laws directed at preventing fraud and abuse, which subject our sales and marketing, training
and other practices to government scrutiny.
Our business is also affected by patient privacy laws and government payor
cost containment initiatives, as well as environmental health and safety laws and regulations.
U.S. Device Classification and Clearance
Except where an exemption applies, each new or significantly modified medical
device we seek to commercially distribute in the U.S. will require either a premarket notification to the FDA requesting permission for
commercial distribution under Section 510(k) of the Federal Food, Drug and Cosmetic Act (“FFDCA”), also known as a 510(k)
clearance, approval of a pre-market approval (“PMA”) application, or as part of a drug-device combination product through
a Biologics License Application (“BLA”) or New Drug Application (“NDA”). For example, the use of our FREEDOM
System with therapies not covered by the existing FDA clearance will require additional 510(k) clearance , BLA, NDA or PMA approval.
Under the 510(k) process, applicants must demonstrate to the FDA that a
device is as safe and effective as, or substantially equivalent to, a legally marketed device, known as the “predicate” device.
Applicants must submit performance data to establish substantial equivalence. In some instances, data from human clinical
trials must also be submitted in support of a 510(k), and this data must be collected in a manner that conforms to the applicable Investigational
Device Exemption (“IDE”) regulations. The FDA must issue a substantial equivalence determination before commercial distribution
can occur. Changes to cleared devices that will not significantly affect the safety or effectiveness of the device can generally
be made without additional 510(k) submissions. Changes that will significantly affect the safety or effectiveness of the device
will require a new 510(k) prior to marketing of the modified device. We cannot predict with any certainty how future reforms to
Federal regulations may impact our business. See “ITEM 1A. RISK FACTORS.”
Under the PMA application process, the applicant must demonstrate that
the device is safe and effective for its intended use. This approval process applies to most Class III devices, and generally requires
clinical data to support the safety and effectiveness of the device, obtained in conformance with IDE regulations. The FDA will
approve a PMA application if it finds that there is a reasonable assurance that the device is safe and effective for its intended purpose,
and that the proposed manufacturing is in compliance with the QSRs. For novel technologies, the FDA will seek input from an advisory
panel of medical experts regarding the safety and effectiveness of, and their benefit-risk analysis for the device. The PMA process
is generally more detailed, lengthier and more expensive than the 510(k) process, though both processes can be expensive and lengthy,
and requires payment of significant user fees, unless an exemption is available.
Under the NDA and BLA application process, the applicant must demonstrate
that the drug or drug-device combination is safe and effective for its intended use. Various FDA reviewers will provide written
evaluations in their areas of expertise which are consolidated and provided to FDA senior staff for final evaluation. FDA then provides
the application sponsor approval or a deficiency letter. In the case of a deficiency letter, the sponsor must submit an adequate response
to continue the review process. The NDA and BLA processes involve considerable expense associated with data collection and analysis and
other expenses.
We are also required to comply with the regulations of every other country
where we commercialize products before we can launch or maintain new products on the market. Many countries that previously did
not have medical device regulations, or had minimal regulations, are now introducing them.
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International sales of medical devices manufactured in the U.S. that are
not approved by the FDA for use in the U.S., or that are banned or deviate from lawful performance standards, are subject to FDA export
requirements. Additionally, exported devices are subject to the regulatory requirements of each country to which the device is exported.
Some countries do not have medical device regulations, but in most foreign countries, medical devices are regulated. Frequently,
regulatory approval may first be obtained in a foreign country prior to application in the U.S. due to differing regulatory requirements;
however, other countries require approval in the country of origin first. Most countries outside of the U.S. require that product
approvals be recertified on a regular basis, generally every five years. The recertification process requires that we evaluate any
device changes and any new regulations or standards relevant to the device and, where needed, conduct appropriate testing to document
continued compliance. Where recertification applications are required, they must be approved in order to continue selling our products
in those countries.
Post-Approval Regulation
Even after a device is cleared or approved by FDA for marketing, numerous
regulatory requirements continue to apply. The FDA and other worldwide regulatory agencies and competent authorities actively monitor
compliance to local laws and regulations through review and inspection of design and manufacturing practices, record-keeping, reporting
of adverse events, labeling and promotional practices. The FDA can ban certain medical devices, detain or seize adulterated or misbranded
medical devices, order repair, replacement or refund of these devices and require notification of health professionals and others with
regard to medical devices that present unreasonable risks of substantial harm to the public health. The FDA may also enjoin and
restrain a company for certain violations of the FFDCA and the Safe Medical Devices Act pertaining to medical devices or initiate action
for criminal prosecution of such violations. In addition, FDA and other governmental agencies such as the Department of Justice
can take action against a company that promotes “off-label” uses. Regulatory agencies and authorities in the countries
where we do business can halt production in or distribution within their respective country or otherwise take action in accordance with
local laws and regulations. Any adverse regulatory action, depending on its magnitude, may restrict a company from effectively marketing
and selling its products, may limit a company’s ability to obtain future premarket clearances or approvals, and could result in
a substantial modification to a company’s business practices and operations.
Manufacturing Regulation
We must also comply with FDA and foreign agency regulations governing medical
device manufacturing practices. The FDA and foreign agencies require manufacturers to register their establishments, and they monitor
compliance with device manufacturing requirements through inspections of manufacturing facilities. If an investigator observes conditions
that might be violative, the manufacturer must correct those conditions or explain them satisfactorily or face potential regulatory action
that might include physical removal of the product from the marketplace. We are an FDA-registered medical device manufacturer and
must demonstrate that we comply with the FDA’s QSR and Current Good Manufacturing Practices (“cGMPs”).
We believe that our products and procedures are in compliance with all
applicable FDA and international regulations. There is no assurance, however, that other products we are developing or products
that we may develop in the future will be cleared by the FDA and classified as Class II products, or that additional regulations restricting
the sale of our present or proposed products will not be promulgated by the FDA or other foreign agencies. In addition, changes
in FDA, or other federal or state health, environmental or safety regulations or their applications could adversely affect our business.
Other Healthcare Laws
We are subject to additional healthcare regulation and enforcement by the
federal government and by authorities in the states and foreign jurisdictions in which we conduct our business. These laws include:
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Violations of any of the laws described above include civil and criminal
penalties, damages, fines, the curtailment or restructuring of an entity’s operations, the debarment, suspension or exclusion from
federal and state healthcare programs and/or imprisonment.
Coverage and Reimbursement
Our profitability and operations are subject to changes in legislative,
regulatory and reimbursement policies and decisions as well as changes in private payer reimbursement coverage and payment decisions and
policies. Our products are purchased by specialty pharmacies and ambulatory service providers or hospitals that typically bill various
third-party payors, such as governmental programs (e.g., Medicare, Medicaid, and comparable non-U.S. programs), private insurance plans
and managed care plans, for the healthcare services and products provided to their patients. The ability of our customers to obtain
appropriate coverage and reimbursement for our products and the drugs they administer is critical because it affects which products customers
purchase and the price they are willing to pay. Third-party payors are increasingly reducing coverage and reimbursement for certain
healthcare services and products and challenging prices charged for healthcare services and products.
Environmental Health and Safety Laws
We are required to comply with federal, state, and local environmental
laws; however, there is no significant effect of compliance on capital expenditures, earnings, or competitive position. We do not
use significant amounts of hazardous materials in the assembly of our products.
COMPETITION AND THE MARKET
Competition for the FREEDOM System includes electronic (volumetric) pumps,
elastomeric (infuser) pumps, and fully mechanical pumps as well as other types of pumps. Safety, ease of use, familiarity, cost
effectiveness, and accuracy are the principal driving influencers of pump selection. Electronic pumps deliver drugs at a programmed
flow rate. They are more costly and require electricity or batteries, extensive training and maintenance and must be programmed
by a qualified pharmacist or clinician. Elastomeric pumps are one-time-use balloon type devices used for infusion of drugs in intravenous
and surgical wound site applications. Pharmacies are required to fill them with drugs and deliver them to the patient. They
are easy to use from the patient point of view but can be more costly and time consuming to fill, are temperature sensitive and have larger
residual volumes than other delivery systems.
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Competition for infusion devices for new drugs includes a variety of technologies
and companies. No single technological approach—autoinjectors, electronic (volumetric pumps), mechanical pumps, needle-free injectors,
on-body wearable devices, pen injectors, and pre-filled syringes—will meet the needs of all or even a majority of drugs. For drugs
requiring infusion volumes over 3 ml, the segment most similar to the SCIg drugs currently delivered by the FREEDOM System, the most relevant
approaches include mechanical pumps, on-body wearable devices, and simple electronic pumps. Challenges to their successful commercialization
include high costs per infusion, increased environmental impact, complexity for users, and complex mechanisms with multiple failure modes.
HUMAN CAPITAL RESOURCES
As of December 31, 2022, we had 85 full time employees and 1 part time
employee. As of December 31, 2022, approximately 53% of the Company’s workforce was female and approximately 43% of the Company’s
employees in managerial roles were female. Approximately 41% were minorities (non-White) in the Company workforce as of December
31, 2022. None of our employees are represented by a collective bargaining agreement.
To help drive consistent execution of our business strategy, including
our customer focused philosophy, and support their development, we provide training opportunities to our employees that align with their
responsibilities over their career with us. We maintain a dedicated Internet-based learning platform with a broad portfolio of written,
audio-visual and interactive enterprise-wide and discipline-specific policy and training materials. This platform includes a library
of self-directed courses and virtual, instructor-led programs for employees at all levels of our organization. Managers and supervisors
are provided training to help their employees progress in their professional development.
We believe our employees are key to achieving our business objectives.
We have COVID-19 prevention protocols in place to minimize the spread of COVID-19 in our workplace.
Our key human capital measures include employee safety, turnover, absenteeism
and production. We frequently benchmark our compensation practices and benefits programs against those of comparable industries
and in the geographic areas where our facilities are located. We believe that our compensation and employee benefits are competitive
and allow us to attract and retain skilled and unskilled labor throughout our organization. Our notable health, welfare and retirement
benefits include:
• Company subsidized health insurance
• 401(k) Plan with Company matching contributions
• Paid time off
• Life and disability insurance
We strive to maintain an inclusive environment free from discrimination
of any kind, including sexual or other discriminatory harassment. Our employees have multiple avenues available through which inappropriate
behavior can be reported, including a confidential hotline. All reports of inappropriate behavior are promptly investigated with
appropriate action taken to stop such behavior.
PATENTS AND INTELLECTUAL PROPERTY
We have patents and other intellectual property that we believe protect the FREEDOM System, and we continue to file
patent applications in connection with our research and development activities. As of December 31, 2022, we own 14 U.S. Patents and 60
foreign patents. In addition, we have 5 pending U.S. patent applications and 11 foreign patent applications. The fundamental patents protecting
our drug delivery systems extend until 2034 and beyond.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our
executive officers as of March 8, 2023:
Name Age Position / Held Since
Linda Tharby 54 Chief Executive Officer and President (since April 2021)
Brian Case 50 Chief Technology Officer (since April 2022)
Executive officers hold office at the discretion of the Board of Directors.
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Ms. Tharby was appointed as President and CEO in April 2021. Ms. Tharby
has over 25 years of executive leadership experience building and leading strong performing global organizations that develop and commercialize
products and service innovations, while delivering solutions to patients in the home setting. Prior to joining KORU, Ms. Tharby spent
the last 24 years working in various roles of increased responsibility at Becton Dickinson (“BD”). Ms. Tharby was a
member of the Executive Leadership team of BD that transformed the company from an $8 billion medical supplies company to an $18 billion
global medical technology company. Ms. Tharby’s last role was as Chief Customer Experience Officer from July 2018 through
December 2020. Prior to that she served as BD’s Chief Human Resources Officer, from October 2016 through July 2018. From 1998
to 2016, she held numerous senior global business leadership roles at BD, including Executive Vice President and President of Life Sciences,
Group President of Pre-Analytical Systems and Biosciences, Worldwide President of Diabetes Care, and Vice President/General Manager of
Pharmaceutical Systems. Ms. Tharby has an Honors Bachelor of Business Administration from Wilfrid Laurier University in Waterloo, Ontario
Canada.
Mr. Adams joined KORU Medical Systems in November 2021 as Vice President
of Financial Planning and Analysis and was appointed Interim- Chief Financial Officer in July 2022. Mr. Adams has an extensive background
in financial planning, corporate finance, commercial and supply chain finance, and mergers and acquisitions (M&A). Prior to joining
KORU, Mr. Adams spent 10 years at Integra Life Sciences in various leadership positions in Finance and Accounting Controllership with
most recent position as Senior Director of Finance. In this role, Mr. Adams was the head of finance for Integra’s Tissue Technology
Business where he served a leading role in supporting a $500 million business unit to high growth and profitability. Previous roles included
Group Controller/Head of FP&A Global Supply and prior to Integra Life Sciences, Mr. Adams served as Director of Finance at Pfizer
Inc serving in many domestic and international roles. Mr. Adams earned his Bachelor of Science in Business Administration-Accounting &
Finance from the Ohio State University.
Mr. Case joined KORU Medical Systems in April 2022 as Chief Technology
Officer. Mr. Case brings over 20 years of research and development experience working with a combination of large and small medical device
companies. For the 16 years prior to joining KORU, Mr. Case was an R&D leader with Fresenius Kabi, a global leader specializing
in lifesaving medicines and technologies for infusion, transfusion, and clinical nutrition. As the Vice President of R&D for
the Transfusion and Cell Technologies business, Mr. Case provided global business and technical leadership to drive the long-term product
vitality of the business and promote entry into new business areas. During his time at Fresenius, Mr. Case’s many accomplishments
included bringing new products and technologies to market, leading to new business divisions, multiple international product approvals
and value creation for the company. Mr. Case also led the Project Management office for the company, responsible for the identification
and implementation of best practices and functional excellence. Prior to Fresenius, Mr. Case was the R&D Manager, Advanced Research
at Cook Medical where he led a cross-functional team that developed and assessed new technologies to create a product portfolio to service
the peripheral disease market. Mr. Case’s work has been prolific with over 100 patents filed during his career. Mr. Case received
his Master of Science in Engineering Management from Rose-Hulman Institute of Technology, and his Bachelor of Science in Engineering Mechanics,
from University of Illinois.
ITEM 1A. RISK FACTORS
RISK FACTORS
An investment in our common stock involves significant risks. Before
making an investment in our common stock, you should carefully consider all of the information contained in this Annual Report on Form
10-K and our other filings with the SEC including the material risks and uncertainties that we have identified below. The risks
and uncertainties identified below are not the only risks and uncertainties we face. If any of the material risks or uncertainties
that we face were to occur, the trading price of our common stock could decline and you could lose part or all of your investment. Please
note that additional risks not currently known to us or that we currently deem immaterial also may adversely affect our business, operations,
results of operations, financial condition and prospects.
Risks Related to Our Business
If we are unable to successfully introduce new products or fail to
keep pace with advances in technology, our business, financial condition and results of operations could be adversely affected.
We need to successfully introduce new products to achieve our strategic
business objectives. A significant element of our strategy is to increase revenue growth by investing in innovation and new product
development, which will require substantial resources. Our successful product development will depend on many factors, including
our ability to attract strong talent to lead our research and development efforts, properly anticipate and satisfy customer needs, adapt
to new technologies, obtain regulatory concurrence on a timely basis, demonstrate satisfactory clinical results, manufacture products
in an economical and timely manner, obtain appropriate intellectual property protection for our products, gain and maintain market acceptance
of our products, and differentiate our products from those of our competitors. In addition, patents attained by others can preclude
or delay our commercialization of a product. There can be no assurance that any products now in development or that we may seek to develop
in the future will achieve technological feasibility, obtain regulatory concurrence or gain market acceptance. If we cannot successfully
introduce new products or adapt to changing technologies, our products may become obsolete, and our revenue and profitability could suffer.
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Our business depends on an adequate supply of drugs to be administered
by our products.
Demand for our products depends on the availability of drugs to be administered
by them. Currently, most of our products require immunoglobulin therapies that rely on blood plasma collection for drugs such as
Hizentra® and Cuvitru®. Any disruption in the supply of these drugs for any reason, including contamination, could significantly
adversely affect our business. The change of any drug indication by the FDA or comparable foreign governmental agencies could also
result in decreased demand for our products. In addition, pharmaceutical companies and other competitors have or are developing
alternative therapies for disease states that are deliverable with devices we do not offer or without a medical device. The COVID-19
pandemic has negatively impacted the collection of plasma, the source of the active ingredient of SCIg medications, which may limit the
supply of these drugs. If there is not an adequate supply of drugs requiring administration by medical devices such as those provided
by us or alternative therapies are developed, our sales may suffer and/or our products may become obsolete.
Our compliance with EU MDR regulations by December 2028 will require significant
investment and, if we are not in compliance by that time, we will not be able to sell our products in the EU.
In the European Union (“EU”), we are required to comply with
the new Medical Device Regulation (“MDR” or “EU MDR”) effective May 2021, which supersedes the prior Medical Device
Directives. Medical devices which have a valid CE certificate to the current Medical Device Directives (issued before May 2021), as do
all of our current products, can continue to be sold until December 2028 or until the CE certificate expires, whichever comes first, providing
there are no significant changes as defined in Article 120 of EU MDR. The MDR was published in May 2017 with a 3-year transition period.
That transition period was extended to May 2021 due to the COVID-19 pandemic. In early 2023, the transition period was further extended
to December 2028 for class IIa products. The CE mark required to sell medical devices in the EU is affixed following conformity assessment
and either approval from an appointed independent notified body or through self-certification by the manufacturer. The selected pathway
to CE marking is based on product risk classification. CE marking indicates conformity to the applicable essential requirements of the
relevant Medical Device Directives and in the future to the general safety and performance requirements for the new MDR. The MDR will
change multiple aspects of the existing regulatory framework for CE marking, such as increased clinical evidence requirements and other
new requirements, including Unique Device Identification (“UDI”) as well as many other post-market obligations. MDR also significantly
modifies and increases the compliance requirements for the industry and will require significant investment by us in the near future to
implement.
Our products are also subject to approval and regulation by foreign regulatory
and safety agencies. For example, the EU has adopted the EU Medical Device Regulation (the “EU MDR”) and the In Vitro Diagnostic
Regulation (the “EU IVDR”), each of which impose stricter requirements for the marketing and sale of medical devices, including
in the area of clinical evaluation requirements, quality systems and post-market surveillance. Implementation of the compliance requirements
of these regulations requires us to incur significant expenditures and utilize resources. Failure to continue to meet these requirements
could adversely impact our business in the EU and other regions that tie their product registrations to the EU requirements.
If we are unable to comply with the MDR by December 2028, we will not be able
to sell our products in the EU, which will materially impact our net revenues.
Interruption of our manufacturing operations, including due to transitioning
to our new facility, could adversely affect our future revenues and operating income.
The FDA and other U. S. and non-U.S. government agencies regulate our manufacturing
operations, which includes product assembly, calibration, pre- and post-assembly quality control inspection and testing, and final packaging
for all of our products. Variations in the manufacturing process may result in production failures which could lead to launch delays,
product shortage, unanticipated costs, lost revenues and damage to our reputation. A failure to identify and address manufacturing
problems prior to the release of products to our customers may also result in a quality or safety issue that could result in a recall
or other inability to sell our products.
Our products are currently manufactured and stored at our corporate headquarters
and manufacturing facilities. Loss or damage to our manufacturing and storage sites due to weather, vandalism, terrorism, a natural
disaster, issues in our manufacturing process, equipment failure or other factors, could adversely affect our ability to manufacture sufficient
quantities of products or otherwise deliver products to meet customer demand or contractual requirements which may result in a loss of
revenue and other adverse business consequences, including damage to our relationship with customers. Additionally, Command manufactures
and supplies the Company’s subassemblies, needle sets and tubing products in Nicaragua. There could be a delay in providing the
products timely due to their climate and international boundaries.
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We take precautions to safeguard our facilities, including acquiring insurance,
adopting health and safety protocols and utilizing off-site storage of computer data. Our insurance may not cover our losses in
any particular case. In addition, regardless of the level of insurance coverage, damage to our facilities may harm our business,
financial condition and operating results.
Public health crises, such as the COVID-19 pandemic, have had, and
could in the future have, a negative effect on our business.
Pandemics or disease outbreaks, such as the COVID-19 pandemic, have created
and may continue to create significant volatility, uncertainty and economic disruption in the markets we sell our products into and operate
in, primarily the U.S., Europe, and Asia-Pacific and may negatively impact business and healthcare activity globally. In response to the
COVID-19 pandemic, governments around the world have imposed measures designed to reduce the transmission of COVID-19 and individuals
continue to respond to the fear of contracting COVID-19. In particular, elective procedures and exams were delayed or cancelled, there
were significant reductions in physician office visits, and hospitals postponed or canceled capital purchases as well as limited or eliminated
services. While elective procedures and exams and capital purchases have increased from initially depressed levels, the reduction in elective
procedures, exams and capital purchases has had, and we believe may continue to have, a negative impact on the sales of our products .
Additionally, governments and other third-party payors around the world facing tightening budgets could move to further reduce the reimbursement
rates or the scope of coverage offered, which could further adversely affect sales of our products.
The extent to which fear of exposure to or actual effects of COVID-19,
new variants, disease outbreak, epidemic or a similar widespread health concern impacts our business will depend on future developments,
which are highly uncertain and cannot be predicted with confidence, such as the speed and extent of geographic spread of the disease,
the duration of the outbreak, travel restrictions, the efficacy of vaccination and treatment; impact on the U.S. and international healthcare
systems, the U.S. economy and worldwide economy; the timing, scope and effectiveness of U.S. and international governmental response;
and the impact on the health, well-being and productivity of our employees.
We may be unable to compete successfully in our highly competitive
industry.
We operate in a single market – ambulatory infusion – and are
dependent upon our success in that market. We face competition in our market from a wide range of international and domestic companies,
including those that deliver electronic volumetric pumps, elastomeric infuser pumps, other mechanical devices, novel drug delivery devices
and methodologies, and devices and formulation technologies that allow drugs to be delivered in volumes smaller than the FREEDOM System
is designed to deliver. These include large medical device companies with multiple product lines, some of which may have greater
financial and marketing resources than we do. We also face competition from companies that are even more specialized than ours with
respect to particular markets or product lines. Some of those companies have greater financial and sales and marketing resources
than we do or offer products at a lower price point than ours. In addition, former employees may develop products that are competitive
with ours or capitalize on customer relationships developed while employed with us, subject to their continuing obligations under confidentiality
agreements and other restrictive covenants that may survive their employment. We face competition on the basis of product features,
clinical or economic outcomes, product quality, availability, price, services, technological innovation and other factors. In addition,
we face changing customer preferences and requirements, changes in the ways health care services are delivered, including the transition
of high-acuity care to lower-acuity, and non-acute care settings.
Competition may increase further as additional companies begin to enter
our market or modify their existing products to compete directly with ours. If we are forced to reduce our prices due to increased
competition, our business could suffer.
The medical technology industry has also experienced a significant amount
of consolidation, resulting in larger companies with greater access to markets. Pharmaceutical manufacturers, health care systems,
other health care companies and even retail pharmacies are also consolidating, resulting in greater purchasing power for these companies.
As a result, competition among medical device suppliers to provide goods and services has increased. Group purchasing organizations
and integrated health delivery networks have also served to concentrate purchasing decisions for some customers, which has led to downward
pricing pressure for medical device suppliers. Further consolidation in the industry could intensify competition among medical device
suppliers and exert additional pressure on the prices of our products.
Consolidation in the medical industry could have a negative impact with
payor and provider relationships and distributor relationships, as we could lose market share as consolidation occurs.
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Technological developments by others may disrupt our business and
negatively impact our revenues.
The medical device industry is subject to rapid technological change and
discovery and frequent product introductions. The development of new or improved products, processes or technologies by other companies
that provide better features, pricing or clinical outcomes or economic value may render our products or proposed products obsolete or
less competitive. If our competitors respond more quickly to new or emerging technologies and changes in customer requirements or
we do not introduce new versions or upgrades to our product portfolio in response to those requirements, our products may not be marketable.
If competitors develop more effective or affordable products or achieve earlier patent protection or product commercialization for
new products than we do, our operations will likely be adversely affected.
We are subject to costly and complex laws and governmental regulations
and any adverse regulatory action may materially adversely affect our financial condition and business operations.
Our medical devices and technologies, as well as our business activities,
are subject to a complex set of regulations and rigorous enforcement, principally by the FDA, numerous other federal, state, and non-U.S.
governmental authorities and equivalent regulatory bodies of other countries. To varying degrees, each of these agencies requires
us to comply with laws and regulations governing the design, development, and manufacturing; testing, labeling, content and language of
instructions for use and storage; clinical trials; product safety; establishment registration and device listing; marketing, promotion,
and distribution of our products; premarket clearance and approval; record keeping procedures; advertising and promotion; recalls and
field safety corrective actions; post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if
they were to recur, could lead to death or serious injury; post-market approval studies; and product import and export.
In the U.S., our device products are subject to clearance or approval by
FDA under the FFDCA. Before we can market a new medical device, or a new use of, new claim for, or significant modification to,
an existing product, we must first receive either 510(k) clearance or approval of a PMA application from the FDA, unless an exemption
applies. Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the device
is “substantially equivalent,” as defined in the statute, to a legally marketed predicate device. To be “substantially
equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological
characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or
effectiveness than the predicate device. If the manufacturer is unable to demonstrate substantial equivalence to FDA’s satisfaction,
or if there is no available predicate device, then the manufacturer may be required to seek approval through the PMA application process,
which is generally more costly and time consuming than the 510(k) process. Through the PMA application process, the applicant must
submit data and information demonstrating reasonable assurance of the safety and effectiveness of the device for its intended use. Accordingly,
a PMA application typically includes, but is not limited to, extensive technical information regarding device design and development,
pre-clinical and clinical trial data, manufacturing information, labeling and financial disclosure information for the clinical investigators
in device studies. In the future our device products may be approved as part of a drug submission under a combination product regulatory
pathway. Under the combination product approval process, our device would typically be submitted as part of a drug application, typically
a BLA or NDA in the United States. The proof required for approval as a combination product is similar to that required for a 510(k),
but may differ in material ways. In addition, the regulatory approval is held by the pharmaceutical manufacturer, not KORU.
We cannot guarantee that we will be able to obtain or maintain FDA 510(k)
clearance or premarket approval for our new products or enhancements or modifications to existing products (including the use of our FREEDOM
System with therapies not covered by the existing FDA clearance), and the failure to maintain approvals or clearances, or obtain approval
or clearance could have a material adverse effect on our business, results of operations, financial condition and cash flows. Even if
we are able to obtain approval or clearance, it may:
• take a significant amount of time
• require the expenditure of substantial resources
• involve modifications, repairs, or replacements of our products, and
• limit the proposed uses of our products.
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Both before and after a product is commercially released, we have ongoing
responsibilities under the FDA and other applicable non-U.S. government agency laws and regulations. The FDA and other worldwide
regulatory agencies actively monitor compliance with local laws and regulations through review and inspection of design and manufacturing
practices, recordkeeping, reporting of adverse events, labeling and promotional practices. The results of these inspections can
include inspectional observations on the FDA’s Form 483, warning letters, or other forms of enforcement. If the FDA or any