KORU Medical Systems, Inc. (KRMD) FY 2021 MD&A

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 8 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 designs, manufactures and markets proprietary portable and
innovative medical devices primarily for the ambulatory infusion market as governed by the United States Food and Drug Administration
(the “FDA”) quality and regulatory system and international standards for quality system management.

KORU Medical continues to monitor its operations and government recommendations
as they relate to the COVID-19 pandemic. We cannot predict the effects the pandemic may have on our business, in particular with
respect to demand for our products, our strategy, and our prospects, the effects on our customers, or the impact on our financial results.
For example, our future net revenue growth may continue to be impacted due to fewer new prescriptions for individuals with Primary
Immune Deficiency Disease (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”) as a result
of patients not seeking care during the pandemic. We believe that the pandemic has precipitated limited availability and rising costs
of raw materials and labor. We have accounted for these costs of which we are aware, but we may see a future impact on our financial results
if current trends continue.

On March 15, 2021, the Company entered into an employment agreement with
its President and Chief Executive Officer, Linda Tharby. Ms. Tharby has over 25 years of executive leadership experience building and
leading strong performing global organizations, developing and commercializing products and service innovations, and delivering solutions
to patients in the home setting.

The Company began its implementation of secondary sourcing of our needle
and tubing sets to Command at the beginning of 2021 and is expected to complete the implementation by the second half of 2022. The Company
has entered into a lease commencing March 1, 2022 for a new manufacturing facility and corporate headquarters, into which the Company
expects to move in June 2022.

Our revenues derive 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 products for
the delivery of subcutaneous drugs that are FDA cleared for use with the KORU Medical infusion system, with the primary delivery today
for immunoglobulin to treat PIDD and CIDP.  Novel therapies consist of product revenues of 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 received from biopharmaceutical companies to ready or customize
the FREEDOM System for clinical and commercial use.

The Company achieved four quarters of sequential quarterly growth in 2021,
ending the year with net revenues of $23.5 million, or 2.8% below 2020, with the shortfall driven by novel therapies where we had a large
clinical trial order in 2020. Our domestic core net revenues for 2021 were 0.8% higher than last year mostly due to price in the second
half of the year, and our international core net revenues were up 14.5% compared to last year driven by growth in key customers.

Our gross margin, which is our gross profit stated as a percentage of net
revenues, for 2021 was 58.6%, a decline from prior year of 61.8%. The majority of the decline was driven by delays in the transition to
our secondary manufacturing source. We expect this transition to be completed in the second half of 2022.

Operating expenses in 2021 increased by 28.9%, or $4.6 million compared
to last year, mostly driven by costs associated with building out our executive team, regulatory efforts in support of 510(k) approvals
and research and development spend in support of our innovation efforts.

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RESULTS OF OPERATIONS

Year Ended December 31, 2021 compared to Year Ended December 31, 2020

Net Revenues

The following table summarizes our net revenues for the years ended December
31, 2021 and 2020:

Total net revenues decreased $0.7 million or 2.8% for the year ended December
31, 2021, as compared to the prior year period, driven by lower novel therapies revenue due to a large clinical trial in 2020. Domestic
core revenue grew 0.8% mostly due to price in the second half of the year and international core grew 14.5%, driven by growth in key customers.

Gross Profit

Our gross profit for the years ended December 31, 2021, and 2020 is as
follows:

Gross profit decreased $1.2 million or 7.8% for the year ended December
31, 2021, as compared to the same period in 2020.

Gross profit, stated as a percentage of net revenues, which is referred
to as gross margin, declined to 58.6% for the year ended December 31, 2021, compared to 61.8% for the same period last year. The majority
of the decline was driven by unfavorable product mix and a delay in the transition to our secondary manufacturing source. This was partially
offset by price favorability due to a price increase in the second half of 2021.

Selling, general and administrative, Litigation, and Research and
development

Our selling, general and administrative, litigation and research and development
costs for the years ended December 31, 2021, and 2020 are as follows:

Selling, general and administrative expenses increased $5.8 million, or
48.5%, for the year ended December 31, 2021 compared to the same period last year, due to higher salary, benefits and recruiting fees
of $2.4 million related to new hires to support expansion of our quality and regulatory, commercial and business development teams.
Further contributing to the increase was $1.6 million in costs associated with the departure and replacement of the former chief executive
officer and the recruitment of two new Board members, which includes non-cash equity expense of $0.4 million. Market research, testing
and consulting fees to support commercialization and regulatory filings of $1.1 million and higher director fees and director and officer
liability insurance of $0.8 million also contributed.

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Litigation fees decreased $2.4 million compared to the same period last
year due to the settlement agreement reached with EMED Technologies Corporation (“EMED”) in the prior year.

Research and development expenses increased $1.2 million for the year ended
December 31, 2021, compared with the same period last year mostly due to fees related to personnel to support product development.

Depreciation and amortization

For the year ended December 31, 2021, depreciation and amortization expense
increased $44,535, or 10.6%, compared with the same period last year.  We continued to invest in capital assets, mostly related to
manufacturing and computer equipment.

Net Loss

Our net loss for the year ended December 31, 2021, was $4.6 million, as
compared to net loss of $1.2 million for the year ended December 31, 2020, driven by higher selling, general and administrative expenses
and research and development costs, partially offset by lower litigation costs, all as described above. Further offsetting the loss was
a tax benefit of $0.3 million resulting from book to tax differences related to stock option expense and the tax benefit for the net operating
losses of approximately $1.5 million.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity is our cash of $25.3 million as of December
31, 2021, and $3.5 million of funds available under our revolving credit facility. Our principal source of operating cash inflows is from
sales of our products to customers. Our principal cash outflows relate to the purchase and production of inventory and related costs,
selling, general and administrative expenses and research and development costs.

To develop new products, support future growth, achieve operating efficiencies,
and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and research and development.
We estimate expenses to be between $27.0 million and $28.0 million in 2022. We expect our 2022 capital investments for manufacturing and
leasehold improvements for our new facility to be in aggregate between $1.5 million and $2.0 million, net of financing arrangements.

Our inventory position was $6.1 million at December 31, 2021. We expect
these levels to rise as we build to ensure timely order fulfillment as we complete the transition of the manufacturing of our needle sets
and tubing products to our secondary source and for supply continuity as we move our manufacturing facility to our new location in 2022.
As the relocation and transition to our secondary source are completed, this inventory is expected to convert to a source of cash in the
future.

On March 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 between March 13, 2020, and December 31, 2020.
The Consolidations Appropriations Act (CAA), signed into law on December 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 between January 1, 2021, and December 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 has determined that it has qualified for this credit and anticipates
utilizing benefits under this act to aid its liquidity position and as a result has recorded a receivable of $0.7 million as of December
31, 2021.

In 2020, the Company purchased 683,271 shares of its common stock outstanding
for $3.5 million under its stock repurchase program, which expired on December 31, 2021. No repurchases under the program were made in
2021.

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Cash Flows

The following table summarizes our cash flows:

Operating Activities

Operating cash outflows were $4.3 million for the year ended December 31,
2021 and was mostly attributable to net loss adjusted for non-cash charges of $3.2 million, an increase in accounts receivable of $1.0
million due to higher sales in the fourth quarter of this year compared with last year, an increase in other receivables of $0.7 million
for the ERC refund, an increase in prepaids of $0.8 million related to raw materials in transit, all partially offset by a decrease in
inventory of $0.7 million, and an increase in accounts payable of $0.6 million.

Net cash used in operating activities of $0.7 million for the year ended
December 31, 2020, was mostly attributable to non-cash charges for stock-based compensation and litigation settlement expense of $2.9
million, and an increase in accrued expenses and accrued payroll of $1.4 million, driven by the litigation settlement with EMED and customer
rebates.  Further adding to the increase was an increase in depreciation and amortization of $0.4 million and a decrease in accounts
receivable of $0.7 million due to timing of collections.  Offsetting these were primarily working capital changes which include an
increase in inventory of $4.4 million as we built inventory to keep pace with sales growth and to ensure timely order fulfillment during
the transition to our secondary manufacturing source, an increase in prepaid expenses and other assets of $0.4 million relating to increased
insurance premiums, and a decrease in accrued tax liability of $0.2 million resulting from book to tax differences related to stock option
expense.

Investing Activities

Our net cash used in investing activities of $0.4 million for the year
ended December 31, 2021, was primarily for capital expenditures for manufacturing equipment and computers for new hires and replacement
of retired computers.

Our net cash used in investing activities of $1.0 million for the year
ended December 31, 2020, was primarily for capital expenditures for research and development and strategic initiatives.

Financing Activities

The $2.7 million provided by financing activities for the year ended December
31, 2021 is attributed to cash received for options exercised of $1.3 million, the issuance of common stock as settlement for litigation
of $0.9 million, and $0.5 million on borrowings from indebtedness.

The $23.2 million provided by financing activities for the year ended December
31, 2020 is from the $26.6 million capital raise, net of expenses, and $0.1 million from options exercised, offset against the repurchase
of the Company’s common stock outstanding of $3.5 million.

We expect that our cash on hand, cash flows from operations, and our fully
available credit facility will be sufficient to meet our requirements at least through the next 12 months and thereafter for the foreseeable
future.

See “NOTE 10 — DEBT OBLIGATIONS” for further detail regarding
the promissory note and loan agreement, and “NOTE 11 — EQUITY” regarding the equity offering in the accompanying “Notes
to Financial Statements” appearing in this Annual Report on Form 10-K.  Also, see “NOTE 4 — STOCK-BASED COMPENSATION”
for further detail regarding the EMED settlement.

Debt and Borrowing Capacity

Refer to “NOTE 10 — DEBT OBLIGATIONS” in the accompanying
“Notes to Financial Statements” appearing in this Annual Report on Form 10-K for further details regarding debt.

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COMMITMENTS AND CONTRACTUAL OBLIGATIONS

Lease Commitments

We currently rent a building located at 24 Carpenter Road, Chester, New
York.  This facility is used as our headquarters and for our general operations. We expect to move in June 2022 from this building
into 43,975 square feet of a building located at 100 Corporate Drive, Mahwah, New Jersey. The Company’s existing lease expires December
31, 2022, and the new lease commences March 1, 2022, and expires August 31, 2032.

Refer to “NOTE 5 – LEASES” in the accompanying “Notes
to Financial Statements” appearing in this Annual Report on Form 10-K for further details regarding our operating and finance leases.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles of the United States (“GAAP”) requires estimates and assumptions that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the financial statements and accompanying
notes.  The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of
the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are inherently uncertain.  Based on this definition, we
have identified some of our more critical accounting estimates below.  We also have other key accounting policies, which involve
the use of estimates, judgments, and assumptions that are significant to understanding our results.  For additional information,
see “NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the accompanying “Notes
to Financial Statements” appearing in this Annual Report on Form 10-K.  Although we believe that our estimates, assumptions,
and judgments are reasonable, they are based upon information presently available.  Actual results may differ significantly from
these estimates under different assumptions, judgments, or conditions.

Revenue Recognition

The Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive
model for entities to use in accounting for revenue arising from contracts with customers.  We adopted this ASU effective January
1, 2018, on a full retrospective basis.  Adoption of this standard did not result in significant changes to our accounting policies,
business processes, systems or controls, or have a material impact on our financial position, results of operations and cash flows or
related disclosures.  As such, prior period financial statements were not recast.

The Company’s revenues result from the sale of assembled products.
We recognize revenues when shipment occurs, and at which point the customer obtains control and ownership of the goods.  Shipping
costs generally are billed to customers and are included in sales.

The Company generally does not accept return of goods shipped unless it
is a Company error.  The only credits provided to customers are for defective merchandise.  The Company warrants the syringe
driver from defects in materials and workmanship under normal use and the warranty does not include a performance obligation.  The
costs under the warranty are expensed as incurred.

Provisions for distributor pricing and annual customer growth rebates are
variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded or when it is probable
the annual growth target will be achieved.  Rebates are provided to distributors for the difference in selling price to distributor
and pricing specified to select customers.

The Company established an allowance for charging off uncollectible trade
accounts receivable that have both of the following characteristics: (a) They have a contractual maturity of one year or less, (b)
They arose from the sale of goods or services.

Inventory

Inventories of raw materials are stated at the lower of standard cost,
which approximates average cost, or market value including allocable overhead.  Work-in-process and finished goods are stated at
the lower of standard cost or market value and include direct labor and allocable overhead.

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We maintain reserves for excess and obsolete inventory resulting from the
potential inability to sell certain products at prices in excess of current carrying costs. We make estimates regarding the future recoverability
of the costs of these products and record provisions based on historical experience, expiration of sterilization dates and expected future
trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by
management, additional inventory write downs may be required, which could unfavorably affect future operating results.

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

Refer to “NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES” in the accompanying “Notes to Financial Statements” appearing in this Annual Report on Form 10-K.

ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

Refer to “NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES” in the accompanying “Notes to Financial Statements” appearing in this Annual Report on Form 10-K.