KORU Medical Systems, Inc. (KRMD)

PART I — ITEM 2.  MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 inflation, tariffs, war and other geopolitical
conflicts, customer ordering patterns, availability and costs of raw materials and labor and our ability to recover such costs, future
operating results, growth of new patient starts and the Ig market, our compliance with Food and Drug Administration and foreign authority
regulations and the outcome of regulatory audits, introduction and adoption 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 FREEDOMTM
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 our Annual Report on Form 10-K for the year ended
December 31, 2025. 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 need for additional financing.  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,”
“KORU Medical,” “we,” “us” or “our” refers to KORU Medical Systems, Inc.

OVERVIEW

The Company 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 regulations and standards for quality system
management.

Our revenues derive from three business sources: (i)
domestic core (which consists of US and Canada), (ii) international core, and (iii) pharma services and clinical trials.  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 FREEDOMTM System, with the primary delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”)
and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”). Pharma services and clinical trials revenues 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 FREEDOMTM System for clinical and commercial
use.

The Company ended the second quarter of 2026 with
$12.0 million in net revenues, an 18.2% increase compared to $10.2 million in the same period last year. Revenues were driven by growth
in our core domestic and international business of 12.4% and 59.1%, respectively, along with a decrease of 35% in our pharma services
and clinical trials business.

Gross profit for the second quarter of 2026 was $7.8
million, a 21.2% increase compared to $6.5 million in the same period last year. Gross margin was 65.1% for the three months ended June
30, 2026, an increase from 63.5% in the prior year period. We define gross margin as gross profit stated as a percentage of net revenues.

Operating expenses for the second quarter of 2026
were $7.2 million, an increase of 6.3%, compared to $6.8 million for the same period last year, driven by an increase of $0.6 million
in selling, general, and administrative expenses, and a decrease of $0.1 million in research and development expenses.

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The Company imports certain materials and products
that are subject to U.S. government tariffs and import duties. On February 20, 2026, a US federal court ordered the U.S. government to
begin refunding certain tariffs. The Company believes that some of the tariffs it has paid may be eligible for refund; however, the amount
and timing of any potential refunds are uncertain and not expected to have a material impact on the Company’s financial position.
Accordingly, the Company has not recorded, nor plans to record, any benefit related to possible tariff refunds at this time.

RESULTS OF OPERATIONS

Three months ended June 30, 2026, compared to June
30, 2025

Net Revenues

The following table summarizes our net revenues for
the three months ended June 30, 2026, and 2025:

Total net revenues increased $1.9 million, or 18.2%,
to $12.0 million for the three months ended June 30, 2026, as compared to $10.2 million in the prior year period. Domestic core revenues
were $8.0 million, an increase of 12.4% over the prior year period, primarily due to higher pump and consumable volumes, driven by new
patient starts and market share gains within new and existing accounts, supported by a strong underlying SCIg market. International core
revenues were $3.5 million, an increase of 59.1% over the prior year period, due to higher pump and consumable volumes, driven by distributor
purchases supporting pre-filled syringe (PFS) conversions, and new patient starts in established EU markets. Pharma services and clinical
trials net revenues were $0.6 million, a decrease of 35% over the prior year period, primarily due to lower clinical trial product revenues
related to customer order timing.

Gross Profit

Our gross profit for the three months ended June 30,
2026 and 2025 is as follows:

Gross profit increased $1.4 million, or 21.2%, to
$7.8 million in the three months ended June 30, 2026, as compared to $6.5 million in the prior year period, primarily driven by volume
growth. Gross margin increased to 65.1% in the three months ended June 30, 2026, as compared to 63.5% in the prior year period. The increase
in gross margin was primarily driven by lower manufacturing costs and higher average selling prices.

Operating Expenses

Our selling, general and administrative, research
and development and depreciation and amortization expenses for the three months ended June 30, 2026 and 2025 are as follows:

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Selling, general and administrative expenses increased $0.6 million, or
10.3%, to $5.9 million during the three months ended June 30, 2026, as compared to $5.4 million in the prior year period. The increase
in selling, general and administrative expenses was primarily driven by increases in compensation and benefits from new hires, and legal
fees, partially offset by lower stock compensation, recruiting, and consulting expenses.

Research and development expenses decreased $0.1 million,
or 10.5% to $1.1 million during the three months ended June 30, 2026, as compared to $1.2 million in the prior year period, primarily
due to lower project spend and timing partially offset by higher compensation expenses for salary and stock compensation related to headcount
additions

Depreciation and amortization expense remained flat
at $0.2 million during the three months ended June 30, 2026, as compared to $0.2 million in the prior year period.

Net Income

Our net income increased $0.5 million in the three
months ended June 30, 2026, as compared to the prior year period, primarily driven by an increase in gross profit of $1.4 million from
increased revenues, partially offset by operating expense increases of $0.4 million, and other income and losses change of $0.5 million
due to an asset disposal.

Six months ended June 30, 2026, compared to June
30, 2025

Net Revenues

The following table summarizes our net revenues for
the six months ended June 30, 2026, and 2025:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and
results of operations should be read together with our consolidated financial statements and related notes included under ITEM 7 of this
Annual Report on Form 10-K.  This discussion contains forward-looking statements about our business and operations.  Our actual
results may differ materially from those we currently anticipate as a result of many factors, including those described under Part I –
FORWARD LOOKING STATEMENTS and elsewhere in this Annual Report.

OVERVIEW

The Company develops, manufactures and commercializes innovative patient-centric
large volume subcutaneous solutions 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 revenues derive from three business sources: (i) domestic core (which
consists of US and Canada), (ii) international core, and (iii) pharma services and clinical trials.  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 delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”) and Chronic Inflammatory
Demyelinating Polyneuropathy (“CIDP”). Pharma services and clinical trials revenues 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 Infusion System for clinical and commercial use.

The Company ended the 2025 fiscal year with $41.1 million in net revenues,
a 22.2% increase compared with $33.6 million in the same period last year driven by growth in our domestic core and international core
businesses of 11.0% and 80.0% respectively, partially offset by a 5.6% decrease in our pharma services and clinical trials business net
revenues.

Gross profit for the year ended December 31, 2025, was $25.6 million, an
increase of 20.0% or $4.3 million from the same period last year. Gross margin was 62.3% for the year ended December 31, 2025, a decrease
from 63.4% from the prior year. We define gross margin as gross profit stated as a percentage of net revenues.

Operating expenses for the year ended December 31, 2025, were $28.6 million,
up from $27.8 million from the same period last year.

RESULTS OF OPERATIONS

Year Ended December 31, 2025 compared to Year Ended December 31, 2024

Net Revenues

The following table summarizes our net revenues for the years ended December
31, 2025 and 2024:

Total net revenues increased $7.5 million, or 22.2%, to $41.1 million,
for the year ended December 31, 2025, as compared with the same period last year. Domestic core growth of 11.0% was primarily driven by
volume in consumables and pumps attributed to subcutaneous immunoglobulin (SCIg) market growth and new account share gains. International
core growth of 80.0% was primarily driven by SCIg market growth, increased penetration in several established EU markets, and entry into
multiple new geographic markets. Pharma services and clinical trials net revenues decreased $0.1 million, or 5.6%, driven by lower NRE
collaborations revenues resulting from the timing of project milestones partially offset by higher clinical trial orders when compared
to the prior year.

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Gross Profit

Our gross profit for the years ended December 31, 2025, and 2024 is as
follows:

Gross profit increased $4.3 million, or 20.0%, to $25.6 million, in the
year ended December 31, 2025, compared to the same period in 2024 driven by the increase in net revenues of $7.5 million partially offset
by an increase in manufacturing costs. Gross margin decreased to 62.3% in the year ended 2025 compared to 63.4% for the year ended 2024,
primarily driven by higher materials costs, tariff-related charges, and geographic sales mix from outside the United States, partially
offset by higher average selling prices in the US market.

Operating Expenses

Our selling, general and administrative, research and development and depreciation
and amortization expenses for the years ended December 31, 2025, and 2024 are as follows:

Selling, general and administrative expenses increased $1.7 million, or
8.1%, to $23.4 million, during the year ended December 31, 2025 compared with the same period last year, primarily due to an increase
in compensation and benefits-related bonus accrual, sales commission related to year over year company performance, and legal fees, partially
offset by lower consulting expenses.

Research and development expenses decreased $0.9 million, or 16.6%, to
$4.4 million, during the year ended December 31, 2025 compared with the same period last year, primarily due to lower compensation and
benefit expense and CTO severance expenses from the prior year, partially offset by higher temporary labor expenses for product development.

Depreciation and amortization expense decreased $0.1 million, or 8.8%,
to $0.8 million, during the year ended December 31, 2025, as compared with the same period last year, primarily driven by asset retirement
and decreased capital spending.

Net Loss

Our net loss decreased $3.4 million or 56.5% in the year ended December
31, 2025 compared with the same period last year, driven by higher gross profit of $4.3 million, partially offset by an increase in operating
expense of $0.8 million.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity is our cash on hand of $8.9 million as
of December 31, 2025.  Our principal source of operating cash inflows is from sales of our products in our core business, clinical
trial products, and NRE services to our customers. Our principal cash outflows relate to the purchase and production of inventory, selling,
general and administrative expenses, and funding of research and development, to develop new products, support future growth, achieve
operating efficiencies, and maintain product quality, we are continuing to invest in research and development, innovation, and equipment.
Operating expenses for the 2025 fiscal year were $28.6 million.

Our inventory position was $3.7 million at December 31, 2025, which reflects
an increase of $0.9 million from December 31, 2024.

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We expect that our cash on hand and cash flows from operations will be
sufficient to meet our requirements at least through the next twelve months. Continued execution on our longer-term strategic plan may
require the Company to draw on our credit facility, take on additional debt, raise capital through issuance of equity, or utilize a combination
of the above. Our future capital requirements may vary from those currently planned and will depend on many factors, including our rate
of sales 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,
tariffs, 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 draw on our credit facility or 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 growth opportunities.

Cash Flows

The following table summarizes our cash flows:

Operating Activities

Net cash produced from operating activities was $0.5 million for the year
ended December 31, 2025. This net cash produced was primarily due to the net loss of $2.6 million, an increase in inventory of $0.9 million,
an increase in accounts receivable of $0.5 million, and an increase in prepaids and other assets of $0.2 million, offset by an increase
in accrued expenses for 2025 bonuses and payroll of $0.6 million, and an increase in accounts payable of $0.6 million.

Further contributing to this change were non-cash items of $3.4 million
including stock-based compensation expense of $2.7 million, depreciation and amortization expense of $0.8 million, and partially offset
by a $0.1 million decrease in non-cash leasing liabilities.

Net cash used in operating activities was $0.3 million for the year ended
December 31, 2024. This net cash usage was primarily due to the net loss of $6.1 million, offset by a $2.6 million increase in accrued
expenses for 2024 bonuses and payroll, $0.7 million in lower inventories, and $0.7 million in increased accounts payable, partially offset
by a higher accounts receivable balance of $1.7 million, and $0.2 million of changes in other liabilities, prepaids, and other assets.

Further contributing to this change were non-cash items of $3.8 million
including stock-based compensation expense of $2.6 million, depreciation and amortization expense of $0.9 million, and $0.3 million for
non-cash leasing charges and losses on disposals of fixed assets.

Investing Activities

Net cash used in investing activities of $0.9 million for the year ended
December 31, 2025, was driven by capital expenditures for manufacturing equipment related to our production line for our next generation
consumables and infusion pumps.

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