This Quarterly Report on Form 10-Q contains, and our officers and representatives may from time to time make, certain "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to us that are based on the beliefs of the management, as well as assumptions made and information currently available. 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 uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. 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 theSecurities and Exchange Commission , including in our Annual Report on Form 10-K for the year endedDecember 31, 2022 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 transition to our secondary manufacturing source, reduction of inventory, move of our manufacturing facility, need for additional financing, and 2023 expenses and capital expenditures. 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.
Throughout this report, the "Company," "
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Table of Contents OVERVIEW The Company develops, manufactures and markets proprietary portable and innovative medical devices primarily for the subcutaneous drug delivery market as governed by theUnited States Food and Drug Administration (the "FDA") quality and regulatory system and international standards for quality system management. Our revenues derive from three business sources: (i) domestic core, (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 use being for the delivery for immunoglobulin to treat Primary Immunodeficiency Diseases ("PIDD") and Chronic Inflammatory Demyelinating Polyneuropathy ("CIDP"). Novel therapies 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.
In
The Company entered into a lease commencingMarch 1, 2022 for a new corporate headquarters and manufacturing facility located inMahwah, NJ . During the quarter endedJune 30, 2022 , the Company completed the first phase of the move, the headquarters and office staff to the new location, and completed the move of manufacturing during the first quarter of 2023.
The Company ended the 2023 first fiscal quarter with
Gross profit, for the three months endedMarch 31, 2023 , was$4.1 million , an increase of 14.5% from the same period last year and, stated as a percentage of net revenues was 56.1%, a decline from 58% in the prior year period. Operating expenses for the three months endedMarch 31, 2023 , were$7.2 million , up from$6.7 million for the same period last year, driven primarily by an increase of$0.4 million in research and development expense and an increase of$0.1 million in depreciation expense, which was partially offset by a reduction of$0.07 million in selling, general and administrative expenses. RESULTS OF OPERATIONS
Three months ended
Net Revenues
The following table summarizes our net revenues for the three months ended
Three Months Ended March 31, Change from Prior Year % of Net Revenue 2023 2022 $ % 2023 2022 Net Revenues Domestic Core$ 5,719,135 $ 4,993,536 $ 725,599 14.5% 77.4% 80.0% International Core 1,097,490 894,942 202,548 22.6% 14.8% 14.3% Novel Therapies 575,980 355,852 220,128 61.9% 7.8% 5.7% Total$ 7,392,605 $ 6,244,330 $ 1,148,275 18.4% Total net revenues increased$1.1 million , or 18.4%, for the three months endedMarch 31, 2023 , as compared with the same period last year with double-digit growth across all businesses. Domestic Core growth of 14.5% was primarily driven by increased growth in pumps and consumables from a growing SCIg market, new account wins, increased prefilled syringe adoptions, and increases in average selling prices. International Core growth of 22.6%, was driven by strength across several EU markets, expanded distribution, and growing global Immunoglobulin drug volume availability. Novel Therapies net revenues grew by 61.9% in the first quarter of 2023 primarily related to services performed on an NRE innovation development agreement for a pharmaceutical customer. - 17 - --------------------------------------------------------------------------------
Table of Contents Gross Profit Our gross profit for the three months endedMarch 31, 2023 and 2022 is as follows: Three Months Ended March 31, Change from Prior Year 2023 2022 $ % Gross Profit$ 4,147,035 $ 3,622,305 $ 524,730 14.5% Stated as a Percentage of Net Revenues 56.1% 58.0% Gross profit increased$0.5 million or 14.5% in the three months endedMarch 31, 2023 , compared to the same period in 2022. The 2023 first quarter gross profit increase was driven by the increase in net revenues of$1.1 million as described above. Gross profit as a percentage of revenues decreased to 56.1% in the first quarter of 2023 compared to 58% from the first quarter of 2022. The decline in the gross profit as a percentage of revenues was primarily caused by higher manufacturing costs associated with labor and materials partially offset by an increase in average selling prices.
Selling, general and administrative and research and development
Our selling, general and administrative and research and development costs for
the three months ended
Three Months Ended March 31, Change from Prior Year 2023 2022 $ % Selling, general and 5,425,877 5,491,213 (65,336) -1.2% administrative $ $ $ Research and 1,564,869 1,148,355 416,514 36.3% development$ 6,990,746 $ 6,639,568 $ 351,178 5.3% Stated as a Percentage 94.6% 106.3% of Net Revenues Selling, general and administrative expenses decreased$0.07 million , or 1%, during the three months endedMarch 31, 2023 compared to the same period last year, primarily due to a$0.1 million decrease in liability insurance, a$0.1 million decrease in stock compensation, and a$0.1 million decrease in sales commissions, partially offset by a$0.1 million increase in travel and entertainment expense and$0.1 million in building expense and tax.
Research and development expenses increased
Depreciation and amortization
Depreciation and amortization expense increased by 95.07% to$213,117 in the three months endedMarch 31, 2023 compared with$109,252 in the three months endedMarch 31, 2022 resulting from prior year investments in support of our corporate office and manufacturing site relocation. Net Loss Three Months Ended March 31, Change from Prior Year 2023 2022 $ % Net Loss$ (2,410,885 ) $ (2,537,514 ) $ 126,629 5.0% Stated as a Percentage of Net Revenues (32.6% ) (40.6% ) Our net loss decreased$0.1 million in the three months endedMarch 31, 2023 compared with the same period last year mostly driven by higher net revenues of$1.1 million and associated higher gross margin of$0.5 million , offsetting operating expenses of$0.4 million , and higher other income of$0.1 million due to higher interest income from our treasury bill investments. A tax benefit of$0.6 million resulting from the loss was also recorded during the period. - 18 - --------------------------------------------------------------------------------
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LIQUIDITY AND CAPITAL RESOURCES
Our principal source of liquidity is our cash on hand of$12.2 million as ofMarch 31, 2023 . Our principal source of operating cash inflows is from sales of our products and NRE services to customers. 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, manufacturing technologies, and equipment.
Our inventory position was
OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law. The CARES Act contains a provision known as the Employee Retention Credit ("ERC"), a refundable payroll tax credit for qualified wages paid to retained full-time employees betweenMarch 13, 2020 , andDecember 31, 2020 . The Consolidations Appropriations Act (CAA), signed into law onDecember 27, 2020 , significantly modified and expanded the provisions of the ERC to include wages paid in 2021. For 2021, the ERC provides employers a refundable federal tax credit equal to 70% of the first$10,000 of qualified wages and benefits paid to retained employees betweenJanuary 1, 2021 , andDecember 31, 2021 . Credits may be claimed immediately by reducing payroll taxes sent to the Internal Revenue Service. To the extent that the credit exceeds employment withholdings, the employer may request a refund of prior taxes paid. The Company determined that it qualified for this credit and anticipated utilizing benefits under this act to aid its liquidity position and as a result recorded a receivable of$0.7 million as ofDecember 31, 2021 . We expect the credit to be received before the end of 2023. We expect that our cash on hand, cash flows from operations and available financing sources will be sufficient to meet our requirements at least throughMarch 31, 2024 . Continued execution on our longer-term strategic plan may require the Company to take on additional debt or 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 revenue 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, rising interest rates, increased demand for equity investor capital 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 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. Cash Flows
The following table summarizes our cash flows:
Three Months Ended Three Months EndedMarch 31, 2023 March 31, 2022
Net cash used in operating activities $ (4,660,583 ) $ (1,752,072 ) Net cash used in investing activities $
(283,837 ) $ (752,602 ) Net cash used in financing activities $ (238,972 ) $ (252,968 ) Operating Activities Net cash used in operating activities of$4.7 million for the three months endedMarch 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 . Net cash used in operating activities of$1.8 million for the three months endedMarch 31, 2022 , was primarily due to the net loss of$2.5 million and the deferred tax asset of$0.6 million , offset by favorable net working capital of$0.4 million driven by accounts receivable collections and non-cash charges for stock-based compensation of$0.8 million , and depreciation and amortization of$0.1 million . - 19 -
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Table of Contents Investing Activities
Net cash used in investing activities of
Net cash used in investing activities of$0.8 million for the three months endedMarch 31, 2022 , was for capital improvement expenditures for our new location and manufacturing and office equipment. Financing Activities Net cash used in financing activities for the three months endedMarch 31, 2023 , is from$0.2 million of net borrowings on our indebtedness for a note payable for insurance premium financing.
The
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Refer to "NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES" in the accompanying financial statements, which is incorporated herein by reference.
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