March 2019 Letter To Shareholders

To the Shareholders of Kelyniam Global, Inc.

Kelyniam achieved record sales in 2018 by growing 15% to $2,123,699, marking two years in a row of double digit growth. Unit sales increased 11% and the average selling price per unit increased nearly 5% over 2017. Despite this success, we were expecting more. Our program to produce medical models was delayed and new representative growth was slower than expected. Much of our focus last year was on improving the administrative controls necessary to resolve issues identified in the 483 observations and FDA warning letter we received in October 2017. We are implementing programs to address these issues and Kelyniam is now well positioned to improve on this performance in 2019.

Gross profit improved by 6% to $1,167,679. The company had a negative gross margin of -1.8%, largely due to one- time legal costs and investments in quality and regulatory processes to support our third 510k submission. A significant portion of these expenses will not be recurring in 2019.

Net income improved to a loss of $15,304 from a loss of $72,538 the prior year, partly due to an improvement in the corporate tax rate.

One of the most exciting moments of my career was the day Kelyniam received approval for our first 510(k) in late 2011. The approval was the culmination of nearly a years’ consulting work with the company. A production engineer and I were literally hanging drywall and painting offices so the facility would be ready when the approval came. Everyone was proud of our leading 3D printing technology and excited about the company’s tremendous potential in the custom cranial implant market.

The first two years after launch were successful. The company experienced a few production and marketing challenges, but quickly recovered and we began to see the growth we expected. The stock responded positively to this success, at one point exceeding $1.00 per share. By then my work at Kelyniam was complete and I left to start another business.

The company did not grow as expected. The average growth rate from 2012 – 2016 was -15% and our investors responded accordingly. In early 2017, the company received a warning letter from the FDA that caused us to voluntarily withdraw from the market a product making up >25% of our sales. I rejoined the company in a consulting role in mid 2017 to help manage through this process and became the Chairman and CEO by the end of the year.

In early 2018, the management team met to design a 5-year plan based on 5 simple strategies:

  • Improve our sales and marketing efforts
  • Increase the number of representatives selling our implants
  • Provide outstanding service to the surgeons choosing our products
  • Ensure compliance with regulations and consistently produce the highest quality products on the market
  • Expand our product line and build a pipeline of future product opportunities

Our cash position limited what we could do. Some employees took pay cuts or delayed compensation to ensure we could accomplish our near-term goals. Our manufacturing team worked many nights and week-ends, and even flew to customer locations to deliver implants by hand to ensure delivery within 24 hours. Our commitment to our customers and sales representatives has only become stronger.

Vice President of Sales and Business Development, Dr. Mark Smith, led a program that featured Kelyniam participating in professional meetings (American Academy of Neuro Surgeons, Congress of Neurological Surgeons and others) and the active recruitment of new distributors and independent representatives. The result was an increase in the number of active representatives by 38% and topline revenue growth of 15%. In late 2018, Ms. Laura Reed accepted our offer to become the National Sales Director. We are excited to have Laura in this role as Dr. Smith directs more of his time toward longer term business development opportunities.

Director of Quality and Regulatory Affairs, Eric Boyea, led initiatives to improve our regulatory compliance with FDA regulations and ISO 13485:2016 standards. Eric was a key member of the team responsible for developing and submitting to the FDA a new 510(k) that has the potential to differentiate Kelyniam implants from other current competitors. The 510(k) was submitted in Q4 and we are actively working with the FDA to facilitate the review.

Chief Operating Officer, Chris Breault, is leading a new product development strategy that will leverage our expertise in 3D printing and additive manufacturing. A notable result of this effort was the acquisition of new, state of the art 3D printing technology that will support new product lines and current growth for years to come.

We are entering the second year of our 5-year plan. We know that competition and pricing pressure will remain a challenge in 2019. Our focus this year is to continue to solidify and grow our market position and invest in developing a strong product pipeline. While we cannot predict how the FDA will respond, we are hopeful for a successful review and subsequent product launch.

The turnaround is not complete. Many issues remain open but are on track to being resolved. Our quality and regulatory programs are exemplary for a small medical device manufacturer. Our financial controls are improving. Two consecutive years of revenue growth has proven our sales strategy. We now have the right team leading the organization and a solid plan for creating long-term value for the company. And that production engineer with whom I was hanging drywall prior to the first 510(k) approval? That was Chris Breault, the current COO. Kelyniam shareholders can be assured that the entire Kelyniam team is invested in the company and firmly believes in its success.

Thank you to our stockholders, customers and employees for their loyal support as we build Kelyniam into the company we know it can become.

Ross Bjella
Chairman and CEO

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