In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13—Financial Instruments – Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.
In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing several exceptions including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.
The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material effect on our financial condition or results of operations.
The carrying amounts reported in the balance sheet for cash, trade receivables, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments.
The Company reviews its long-lived assets for impairment at least annually or whenever the circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. As of March 31, 2020, the Company does not believe that any of its assets are impaired.
Certain reclassifications have been made to conform prior period data to the current presentation. These reclassifications had no effect on reported net income.
Depreciation expense was $72,768 and $73,515 for the three months ended March 31, 2020 and March 31, 2019, respectively.
NOTE 3 LEGAL PROCEEDINGS
We are involved in several lawsuits with our principal competitor, EMED Technologies Corporation (“EMED”). EMED has alleged that our needle sets infringe various patents controlled by EMED. Certain of these lawsuits also allege antitrust violations, unfair business practices, and various other business tort claims. We are vigorously defending against all of the lawsuits brought by EMED. Although no assurances can be given, we believe we have meritorious defenses to all of EMED’s claims.
The initial case involving EMED was filed by us in the United States District Court for the Eastern District of California on September 20, 2013 (the “California case”), in response to a letter from EMED claiming patent infringement by us, and seeking a declaratory judgment establishing the invalidity of the patent referenced in the letter – EMED’s US patent 8,500,703 – “’703.” EMED answered the complaint and asserted patent infringement of the ’703 patent and several counterclaims relating generally to claims of unfair business practices against us. We responded by adding several claims against EMED, generally relating to claims of unfair business practices on EMED’s part. Both parties have requested injunctive relief and monetary damages in unspecified amounts. On June 16, 2015, the California court entered a preliminary injunction against KORU Medical for making certain statements regarding products cleared for use by the FDA, or that could be safely used, with KORU Medical’s Freedom60 pump, without voiding the product warranty. On September 11, 2015, we requested an ex parte reexamination of the ’703 patent by the US Patent and Trademark Office (“USPTO”). The ex parte reexamination resulted in a Final Office Action, dated July 19, 2017, rejecting all of EMED’s claims in the issued patent. On January 25, 2018, EMED filed an Appeal Brief with a Petition for Revival, which was accepted. On April 9, 2018, the USPTO denied EMED’s request for reconsideration of the order rejecting all claims in the ’703 patent. On June 26, 2019, the Examiner responded to EMED’s appeal brief and maintained all of the final rejections. On December 31, 2019, the Patent Trial and Appeal Board (“PTAB”) of the USPTO issued its decision sustaining the invalidity of claims 1-10 of the ’703 patent, but reversing the Examiner’s rejection of claim 11, leaving claim 11 as the only surviving claim of the ’703 patent. Claim 11 of the ’703 patent, however, was not asserted in the California case. EMED has informed KORU Medical it will neither appeal the PTAB’s decision nor pursue a claim based on infringement of claim 11 of the ’703 patent in the California case. EMED also has moved to dismiss the ’703 patent claims from the California case. That motion and the non-patent claims asserted by the parties in the California case remain pending.
The second court case was filed by EMED in the United States District Court for the Eastern District of Texas (the “Texas Court”) on June 25, 2015, claiming patent infringement on another of its patents (US 8,961,476 – “’476”), by our needle sets, and seeking unspecified monetary damages (“ED Texas ’476 matter”). This ’476 patent is related to the now rejected EMED ’703 patent.
On September 17, 2015, we requested an inter partes review (“IPR”) of the ’476 patent, and in response to our request, the Court entered an order staying the ED Texas ’476 matter until after the PTAB made a decision regarding the validity of the patent. On January 12, 2017, the PTAB issued its Final Written Decision in our favor, invalidating all but one (“dependent Claim 9”) of the claims in the ’476 patent. EMED appealed the PTAB’s ruling to the United States Court of Appeals for the Federal Circuit, which affirmed the PTAB’s Final Written Decision in our favor on April 3, 2018. On April 18, 2018, EMED filed a petition for en banc rehearing, which was denied. On August 16, 2018, EMED petitioned the United States Supreme Court for a Writ of Certiorari to review the Federal Circuit’s upholding the PTAB’s Final Written Decision. On October 29, 2018, the United States Supreme Court denied EMED’s Petition for a Writ of Certiorari, thus finally affirming the PTAB’s invalidation of ’476, save for one dependent claim.
Following the PTAB’s Final Written Decision in the IPR regarding the ’476 patent, EMED filed a new patent application claiming priority back to the application that issued as ’703, which is the patent at issue in the California case. Submitted for accelerated examination, this new application issued as US 9,808,576 – “’576” on November 7, 2017. On this same date, EMED filed a new case (the “third case”) in the Texas Court claiming patent infringement of ’576, also directed to our needle sets, and seeking unspecified damages and a preliminary injunction against marketing and sales of our needle sets. We filed a Motion to Dismiss or Transfer Venue to the United States District Court for the Southern District of New York (“SDNY”), which resulted in the transfer of the third case to SDNY (“SDNY ’576 matter”) on May 30, 2018.
On April 23, 2018, EMED filed a new civil case (the “fourth case”) against us in the Texas Court asserting antitrust, defamation and unfair business practice claims, and seeking unspecified damages, similar to those previously presented in the California case, described above. The fourth case also names Andrew Sealfon, then President and CEO of KORU Medical, individually as a defendant. As the result of a hearing on November 14, 2018, on December 7, 2018, the Court entered an order transferring the fourth case to the United States District Court for the Eastern District of California (the “California Court”). The California Court set an initial schedule for a preliminary motion phase and on August 30, 2019 EMED filed a second amended complaint. On September 30, 2019, KORU Medical and Sealfon filed a motion to dismiss that complaint, and Sealfon filed a separate motion to dismiss the case as to him for lack of jurisdiction. Ultimately, we expect this case to be coordinated or consolidated with the California case, or dismissed, as the California Court sees fit.
- 9 -
At the same hearing on November 14, 2018, the Texas Court granted EMED leave to amend its infringement contentions, following the IPR decision invalidating all but one claim of the ’476 patent, in order to assert infringement of that sole remaining claim, namely dependent Claim 9. The Texas Court’s order allowing EMED’s amendment of its infringement contentions against us was entered on December 7, 2018.
The ED Texas ’476 matter proceeded under EMED’s amended infringement contention to incorporate the surviving dependent Claim 9, which incorporates Claims 1 and 8 of the ’476 patent, meaning that, to prove infringement on our part, EMED must prove more elements of infringement than it originally charged against us. In April 2019, EMED served its damages expert’s report opining that EMED’s past infringement damages amount to $1.5 million, and in May KORU Medical served its damages expert’s rebuttal report opining that EMED’s expert miscalculated damages which if properly calculated would amount to less than $100,000. The Texas Court had set a trial date of August 19, 2019, for the trial of the ED Texas ’476 matter. On June 24, 2019, the Texas Court Magistrate Judge issued a Report and Recommendation decision finding no infringement, literally or under the doctrine of equivalents, by KORU Medical’s accused products. EMED filed its objections on June 26, 2019. On June 28, 2019, the Texas Court issued a Final Judgment in favor of KORU Medical and adopted the decision of the Magistrate Judge that was issued on June 24, 2019, overruled EMED’s objections, awarded court costs to KORU Medical, and dismissed the case. A final judgment has been entered. KORU Medical has submitted its Bill of Costs for approximately $16,000 and has moved to declare the case exceptional and for recovery of its attorney fees and expenses of approximately $2.3 million in defense of EMED’s assertion of the ’476 Patent. EMED has objected to our Bill of Costs, opposed the motion for fees, and filed a notice of appeal of the non-infringement judgment to the Court of Appeals for the Federal Circuit (the “CAFC”). On September 16, 2019, EMED filed its opening appeal brief. On October 28, 2019, KORU Medical filed its responsive brief, and on November 7, 2019 EMED filed its reply brief. On November 20, 2019, KORU Medical filed a motion for leave to file a sur-reply brief to respond to a new argument raised by EMED in its reply brief, which EMED opposed, and which the CAFC referred to the judicial panel that will hear the appeal for consideration. On April 9, 2020, the CAFC issued a unanimous decision affirming the ED Texas Court’s judgment of non-infringement. The Texas Court had stayed proceedings in the district court until the appeal process is completed, and the parties will now meet and confer regarding when to return to the district court to lift the stay and address KORU Medical’s fee motion which remains pending.
The SDNY ’576 matter proceeded in the New York court through claim construction on the ’576 Patent, whereupon KORU Medical sought permission from the New York court to file a motion for summary judgement, to which EMED objected. The New York court granted KORU Medical’s request, and on July 10, 2019, KORU Medical filed its motion for summary judgement. EMED opposed that motion, and on August 30, 2019, the New York court granted summary judgement, and dismissed the lawsuit. A final judgement has been entered. KORU Medical has submitted a Bill of Costs for approximately $1,500, to which EMED has objected, and has moved the New York court to declare the case exceptional and for recovery of its attorney fees and expenses of at least $1.16 million. EMED has opposed that motion, which was referred to a United States District Court Magistrate Judge to prepare a report and recommendation. On November 12, 2019, the Magistrate Judge issued a Report and Recommendation that KORU Medical’s fee motion be granted, and KORU Medical be awarded approximately $1.1 million in fees and expenses. EMED has filed objections to the Report and Recommendation, to which KORU Medical has responded, and which objections are now pending before the District Court Judge for resolution. EMED has also appealed the New York court’s judgment of non-infringement to the CAFC, which matter also is pending. EMED’s opening appeal brief was due November 8, 2019, but EMED filed its brief on November 12, 2019. EMED filed a motion to extend the time to file its opening brief, which KORU Medical opposed, but the motion was granted. KORU Medical filed its responsive brief on December 23, 2019, on January 9, 2020 EMED filed the joint appendix in support of the parties’ briefing, and on January 13, 2020, EMED filed its reply brief. The appeal remains pending, waiting for the CAFC Court to schedule oral argument.
As is required by the respective Courts in both the SDNY ’576 matter and the ED Texas ’476 matter, the parties have engaged in settlement discussions and have conducted a court-sponsored mediation session, which did not result in settlement.
Although we believe KORU Medical has meritorious claims and defenses in all of the above-described actions and proceedings, their outcomes cannot be predicted with any certainty. If any of these actions against us are successful, they could have a material adverse effect on our business, results of operations, financial condition and cash flows.
NOTE 4 STOCK-BASED COMPENSATION
On June 29, 2016, the Board of Directors amended the Company’s 2015 Stock Option Plan (as amended, the “Plan”) authorizing the Company to grant awards to certain executives, key employees, and consultants under the Plan, which was approved by shareholders at the Annual Meeting of Shareholders held on September 6, 2016. The total number of shares of Common Stock, with respect to which awards may be granted pursuant to the Plan, may not exceed 6,000,000 pursuant to an amendment to the Plan approved by shareholders on April 23, 2019, at the 2019 Annual Meeting of Shareholders.
- 10 -
As of March 31, 2020, the Company had options to purchase 4,472,000 shares of Common Stock outstanding to certain executives, key employees and consultants under the Plan, of which none were issued during the three months ended March 31, 2020.
On February 20, 2019, the Board of Directors of the Company approved an increase in compensation for each non-employee director from $25,000 to $50,000 annually effective January 1, 2019, and an additional $10,000 annually for the chair of each Board committee effective February 20, 2019, in each case to be paid quarterly half in cash and half in common stock at the end of each fiscal quarter. On September 30, 2019, the Board of Directors of the Company named R. John Fletcher, a current KORU Medical director, as Chairman, replacing Executive Chairman, Daniel S. Goldberger, who remains a non-executive member of KORU Medical’s Board of Directors. In Mr. Fletcher’s role as Chairman, he receives an additional $50,000 in annual compensation, to be paid quarterly in shares of KORU Medical common stock based on the closing price of the stock on the last day of each quarter.
Pursuant to Daniel S. Goldberger’s employment agreement dated October 12, 2018, on February 1, 2019, when Donald B. Pettigrew was appointed to President and Chief Executive Officer, Mr. Goldberger was awarded a performance bonus in the amount of $270,000 to be paid half in cash and half in stock. The number of shares that were issued totaled 90,604 and was based upon the closing price of the Common Stock of the Company on February 1, 2019, as reported by the OTCQX. These shares were issued on April 3, 2019.
2015 STOCK OPTION PLAN, as amended
Time Based Stock Options
The per share weighted average fair value of stock options granted during the three months ended March 31, 2020 and March 31, 2019 was zero and $1.10, respectively. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the three months ended March 31, 2020 and March 31, 2019. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued.
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
—
|
|
|
0.00%
|
|
Expected Volatility
|
|
|
—
|
|
|
59.4%-60.3%
|
|
Weighted-average volatility
|
|
|
—
|
|
|
—
|
|
Expected dividends
|
|
|
—
|
|
|
—
|
|
Expected term (in years)
|
|
|
—
|
|
|
10
|
|
Risk-free rate
|
|
|
—
|
|
|
2.64-2.72%
|
|
The following table summarizes the status of the Plan with respect to time based stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
2019
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1
|
|
3,647,000
|
|
$
|
1.32
|
|
|
2,419,000
|
|
$
|
1.00
|
|
Granted
|
|
—
|
|
$
|
—
|
|
|
1,050,000
|
|
$
|
1.57
|
|
Exercised
|
|
175,000
|
|
$
|
0.49
|
|
|
—
|
|
$
|
—
|
|
Forfeited
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
Outstanding at March 31
|
|
3,472,000
|
|
$
|
1.36
|
|
|
3,469,000
|
|
$
|
1.17
|
|
Options exercisable at March 31
|
|
1,306,635
|
|
$
|
1.05
|
|
|
828,219
|
|
$
|
0.58
|
|
Weighted average fair value of options granted during the period
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
1.10
|
|
Stock-based compensation expense
|
|
|
|
$
|
175,239
|
|
|
|
|
$
|
121,875
|
|
Total stock-based compensation expense was $175,239 and $121,875 for the three months ended March 31, 2020 and March 31, 2019, respectively. Cash received from option exercises for the three months ended March 30, 2020 and 2019 was $85,500 and zero, respectively.
- 11 -
The weighted-average grant-date fair value of options granted during the three months ended March 31, 2020 and March 31, 2019, was zero and $1.2 million, respectively. There were 175,000 options exercised during the three months ended March 31, 2020 and zero during the three months ended March 31, 2019.
The following table presents information pertaining to options outstanding at March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Exercise Price
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.38-$3.15
|
|
3,472,000
|
|
6.4 years
|
|
$
|
1.36
|
|
1,306,635
|
|
$
|
1.05
|
|
As of March 31, 2020, there was $2.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 44 months. The total fair value of shares vested as of March 31, 2020 and March 31, 2019, was $868,012 and $293,373, respectively.
Performance Based Stock Options
The per share weighted average fair value of stock options granted during the three months ended March 31, 2020 and 2019 was zero for both periods. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the three months ended March 31, 2020 and March 31, 2019. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued.
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
—
|
|
|
—
|
|
Expected Volatility
|
|
|
—
|
|
|
—
|
|
Weighted-average volatility
|
|
|
—
|
|
|
—
|
|
Expected dividends
|
|
|
—
|
|
|
—
|
|
Expected term (in years)
|
|
|
—
|
|
|
—
|
|
Risk-free rate
|
|
|
—
|
|
|
—
|
|
The following table summarizes the status of the Plan with respect to performance based stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months Ended March 31,
|
|
|
|
2020
|
|
2019
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1
|
|
1,000,000
|
|
$
|
1.70
|
|
|
—
|
|
$
|
—
|
|
Granted
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
Exercised
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
Forfeited
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
Outstanding at March 31
|
|
1,000,000
|
|
$
|
1.70
|
|
|
—
|
|
$
|
—
|
|
Options exercisable at March 31
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
Weighted average fair value of options granted during the period
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
Stock-based compensation expense
|
|
—
|
|
$
|
125,727
|
|
|
—
|
|
$
|
—
|
|
Total performance stock-based compensation expense totaled $125,727 and zero for the three months ended March 31, 2020 and 2019, respectively.
- 12 -
The weighted-average grant-date fair value of options granted during the three months ended March 31, 2020 and March 31, 2019, was zero for both periods.
The following table presents information pertaining to performance based options outstanding at March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Exercise Price
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.70
|
|
1,000,000
|
|
9.2 years
|
|
$
|
1.70
|
|
—
|
|
$
|
—
|
|
As of March 31, 2020, there was $743,471 of total unrecognized compensation cost related to non-vested performance share option based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 31 months. The total fair value of shares vested as of March 31, 2020 and 2019 was zero for both periods.
NOTE 5 DEBT OBLIGATIONS
On February 8, 2018, the Company issued a Promissory Note to KeyBank National Association (“KeyBank”) in the amount of $1.5 million as a variable rate revolving line of credit loan due on demand with an interest rate of LIBOR plus 2.25%, collateralized with a certificate of deposit in the amount of $1.5 million. On September 25, 2018, KeyBank released the certificate of deposit as collateral for the loan and the Company executed a Commercial Security Agreement as collateral for the loan. The Company had $1.5 million and zero outstanding against the line of credit as of March 31, 2020 and 2019, respectively.
NOTE 6 LEASES
We have finance and operating leases for our corporate office and certain office and computer equipment. Our leases have remaining lease terms of 1 to 3 years, some of which include options to extend the leases annually and some with options to terminate the leases within 1 year.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
37,922
|
|
$
|
35,829
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
1,856
|
|
$
|
1,060
|
|
Interest on lease liabilities
|
|
|
87
|
|
|
72
|
|
Total finance lease cost
|
|
$
|
1,943
|
|
$
|
1,132
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
Finance cash flows from finance leases
|
|
$
|
1,848
|
|
$
|
1,028
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
1,856
|
|
$
|
1,060
|
|
Interest on lease liabilities
|
|
|
87
|
|
|
72
|
|
Total finance lease cost
|
|
$
|
1,943
|
|
$
|
1,132
|
|
- 13 -
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
340,118
|
|
$
|
472,224
|
|
|
|
|
|
|
|
|
|
Operating lease current liabilities
|
|
$
|
138,520
|
|
$
|
131,845
|
|
Operating lease long term liabilities
|
|
|
201,598
|
|
|
340,379
|
|
Total operating lease liabilities
|
|
$
|
340,118
|
|
$
|
472,224
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
$
|
12,725
|
|
$
|
6,363
|
|
Accumulated depreciation
|
|
|
(6,693
|
)
|
|
(1,060
|
)
|
Property and equipment, net
|
|
$
|
6,032
|
|
$
|
5,303
|
|
|
|
|
|
|
|
|
|
Finance lease current liabilities
|
|
$
|
4,252
|
|
$
|
4,241
|
|
Finance lease long term liabilities
|
|
|
1,842
|
|
|
1,094
|
|
Total finance lease liabilities
|
|
$
|
6,094
|
|
$
|
5,335
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
Three Months Ended
March 31, 2019
|
|
Weighted Average Remaining Lease Term
|
|
|
|
|
|
Operating leases
|
|
2 Years
|
|
3 Years
|
|
Finance leases
|
|
1 Year
|
|
1 Year
|
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
|
Operating leases
|
|
4.75%
|
|
4.75%
|
|
Finance leases
|
|
4.75%
|
|
4.75%
|
|
Maturities of lease liabilities are as follows:
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
|
Operating Leases
|
|
|
Finance Leases
|
|
2020
|
|
$
|
113,764
|
|
$
|
3,598
|
|
2021
|
|
|
149,476
|
|
|
2,705
|
|
2022
|
|
|
97,256
|
|
|
—
|
|
Total lease payments
|
|
|
360,496
|
|
|
6,303
|
|
Less imputed interest
|
|
|
(20,378
|
)
|
|
(209
|
)
|
Total
|
|
$
|
340,118
|
|
$
|
6,094
|
|
NOTE 7 RELATED PARTY TRANSACTIONS
BUILDING LEASE
Mr. Pastreich, a former director, is a principal in the entity that owns the building leased by us for our corporate headquarters and manufacturing facility at 24 Carpenter Road, Chester, New York 10918. On February 28, 2019, we completed year twenty of a twenty year lease with monthly lease payments of $11,042. On November 14, 2017, we executed a lease extension, which calls for six month extensions beginning March 1, 2019 with the option to renew six times at a monthly lease amount of $12,088. The Company exercised three additional renewal options for September 1, 2019, through February 28, 2021.
The lease payments were $36,264 and $34,172 for the three months ended March 31, 2020, and 2019, respectively. The Company also paid property taxes in the amount of $13,421 and $12,427 for three months ended March 31, 2020, and 2019, respectively.
- 14 -
NOTE 8 SUBSEQUENT EVENTS
On April 14, 2020, the Company issued a promissory note to the KeyBank National Association (the “Bank”) in the aggregate principal amount of $3.5 million (the “Note”) as an extension of its line of credit, replacing its current line of credit agreement and promissory note with the Bank dated February 8, 2018 (the “Original Note”). The Company drew on the additional $2.0 million on April 23, 2020. The Original Note was in the form of a variable rate revolving line of credit with an interest rate of LIBOR plus 2.25%. The $3.5 million Note is in the form of a variable rate non-disclosable revolving line of credit with an interest rate of Prime Rate announced by the Bank minus 0.75%. Interest is due monthly, and all principal and unpaid interest is due on June 1, 2021. The $3.5 million Note may be prepaid at any time prior to maturity with no prepayment penalties. The $3.5 million Note contains events of default and other provisions customary for a loan of this type.
In connection with the Note, the Company entered into a Commercial Security Agreement with the Bank dated April 14, 2020 (the “Security Agreement”), pursuant to which the Company granted a security interest in substantially all assets of the Company to secure the obligations of the Company under the Note. The Security Agreement contains terms and conditions typical for the granting of security interests of this kind.
On April 20, 2020, the Company entered into a Loan Agreement with the Bank (the “PPP Loan Agreement”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), providing for a loan in the principal amount of $1,476,508 (the “PPP Loan”). The PPP Loan was funded on April 27, 2020.
The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for seven months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The promissory note relating to the PPP Loan contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the PPP Loan may be partially or wholly forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company intends to use the PPP Loan amount for qualifying expenses, and will continue to assess whether to apply for forgiveness of the loan in accordance with the terms of the CARES Act.
On April 27, 2020, the Company entered into a Progress Payment Loan and Security Agreement (“PPLSA”) and a Master Security Agreement (the “MSA”), each dated as of April 20, 2020, with Key Equipment Finance, a division of the Bank (“KEF”), to provide up to $2.5 million in financing for equipment purchases from third party vendors. The PPLSA allows the Company to make draws with KEF to make certain payments to the equipment suppliers prior to the commencement of periodic payments under a term loan. Each draw under the PPLSA will bear interest at a variable rate equal to the then-current Prime Rate and will be secured by the financed equipment under the MSA. At the end of each calendar quarter or year, the advances made under the PPLSA will be converted to term loans, subject to KEF’s approval of the equipment and certain other closing conditions being met. Once the draws under the PPLSA are converted into a term loan, each promissory note will bear interest at a fixed rate of 4.07% per annum, subject to adjustment based on KEF’s cost of funds, with principal and interest payable in 84 equal consecutive monthly installments. Each fixed rate installment promissory note may be prepaid, subject to a penalty if prepaid before the fifth anniversary of its issuance.
On April 9, 2020, the United States Court of Appeals for the Federal Circuit affirmed an earlier decision by the United States District Court for the Eastern District of Texas (Case No. 2:15-CV-01167-JRG-RSP) that granted KORU Medical’s motion for summary judgement of non-infringement against EMED. On June 25, 2015, EMED filed a case in the United States District Court for the Eastern District of Texas claiming patent infringement of U.S. Patent 8,961,476 (“’476 Patent”) by the Company’s needle sets and seeking unspecified monetary damages (the “’ED Texas 476 Case”), and that on June 28, 2019 the United States District Judge for the ED Texas ’476 matter issued a Final Judgment of non-infringement in favor of RMS Medical. The District Judge adopted the decision of the Magistrate Judge that was issued on June 24, 2019, overruled EMED’s objections, awarded court costs to KORU Medical, and dismissed the case.
- 15 -