KORU Medical Systems, Inc. (KRMD) FY 2023 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 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) 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 delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”) and Chronic Inflammatory
Demyelinating Polyneuropathy (“CIDP”). Novel therapies 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 System for clinical and commercial use.

The Company completed its transition of substantially all finished goods
manufacturing of its needle and tubing sets to Command Medical Products, a third-party contract manufacturing organization which also
provides subassemblies for all of the Company’s products, in the second quarter of 2023.

The Company entered into a lease commencing March 1, 2022 for a new corporate
headquarters and manufacturing facility located in Mahwah, NJ. During the quarter ended June 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 its manufacturing facility at the
end of the first quarter 2023.

The Company ended the 2023 fiscal year with $28.5 million in net revenues,
a 2.2% increase compared with $27.9 million in the same period last year driven by volume growth in our core domestic and international
business of 5.9% and 10.4% respectively, offset by a 41.6% decline in our novel therapies business.

Gross profit, for the year ended December 31, 2023, was $16.7 million,
an increase of 8.7% or $1.3 million from the same period last year, and stated as a percentage of net revenues was 58.6%, an increase
from 55.1% in the prior year.

Operating expenses for the year ended December 31, 2023, were $27 million,
up from $26.1 million for the same period last year, the increase was driven primarily by research and development and depreciation, partially
offset by selling, general and administrative expenses.

RESULTS OF OPERATIONS

Year Ended December 31, 2023 compared to Year Ended December 31, 2022

Net Revenues

The following table summarizes our net revenues for the years ended December
31, 2023 and 2022:

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Total net revenues increased $0.6 million, or 2.2%, for the year ended
December 31, 2023, as compared with the same period last year.

Domestic core growth of 5.9% was primarily driven
by volume growth in pumps and consumables attributed to overall SCIG market growth and new account share gains. International core growth
of 10.4% was driven by increased volume across several EU markets and the entry into multiple new geographic markets. Novel therapies
net revenues declined by 41.6% driven primarily by lower NRE revenue of $0.9 million and fewer clinical trial supply shipments of $0.2
million than in the prior year.

Gross Profit

Our gross profit for the years ended December 31, 2023, and 2022 is as
follows:

Gross profit increased $1.3 million or 8.7% in the year ended December
31, 2023, compared to the same period in 2022 driven by the increase in net revenues of $0.6 million coupled with a favorable cost of
goods sold impact of $0.7 million. Gross profit as a percentage of net revenues increased to 58.6% in the year ended 2023 compared to
55.1% for the year ended 2022 primarily driven by increased manufacturing productivity and product mix versus the prior year.

Operating Expenses

Our selling, general and administrative, research and development and depreciation
and amortization costs for the years ended December 31, 2023, and 2022 are as follows:

Selling, general and administrative expenses decreased $0.2 million, or
1.2%, during the year ended December 31, 2023 compared with the same period last year, primarily due to a $0.4 million decrease in compensation
and benefits related to executive management restructuring costs that took place in the prior year, and a decrease in stock compensation
costs of $0.2 million, partially offset by $0.4 million increase in compensation costs related to business development and medical affairs
new hires.

Research and development expenses increased $0.8 million, or 15.9% during
the year ended December 31, 2023 compared with the same period last year, primarily due to $0.5 million in compensation and benefits,
$0.1 million in stock compensation and $0.1 million in expenses, to support acceleration and insourcing of our innovation efforts.

Depreciation and amortization expense increased by 48.2% to $0.9 million
in the year ended December 31, 2023 compared with $0.6 million in the year ended December 31, 2022 resulting from prior year investments
in our Mahwah, NJ facility which includes our corporate office, in-house manufacturing, and research and development labs and the associated
annualized depreciation impact.

Net Loss

Our net loss increased $5.1 million in the year ended December 31, 2023
compared with the same period last year mostly driven by the establishment of an allowance for the nonrealization of deferred tax assets
of $6.0 million offset by a higher gross profit of $1.3 million, an increase in other income of $0.4 million due to higher interest and
dividend income from our treasury bill investments, which was partially offset by higher operating expenses of $0.8 million.

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LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity is our cash on hand of $11.5 million
as of December 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, innovation, and equipment. Operating expenses for the 2023 fiscal year were $27.0
million.

Our inventory position was $3.5 million at December 31, 2023, which reflected
a decrease of $2.9 million from December 31, 2022.

In October 2023, the Company received a payroll tax credit under the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”) of $0.7 million. This credit was previously recorded as a receivable..

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 new credit facility, 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
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
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 existing credit facility, 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:

Operating Activities

Net cash used in operating activities was $4.9 million for the year ended
December 31, 2023. This net cash usage was primarily due to the net loss of $13.7, plus cash flows used to reduce accrued expenses of
$1.2 million primarily from the payment of 2023 employee bonuses, and a decrease in accounts payable of $1.4 million. Partially offsetting
these increases were cash flows generated from a decrease in inventory of $2.9 million, a decrease in accounts receivable of $0.5 million,
and changes in working capital of $0.4 million.

Further contributing to this change were non-cash items including a deferred
tax asset increase of $2.0 million partially offset by the establishment of an allowance for non-realization of deferred tax assets of
$6.0 million, stock-based compensation expense of $2.8 million, depreciation and amortization expense of $0.9 million and a loss on disposal
of fixed assets of $0.1 million.

Net cash used in operating activities of $5.4 million for the year ended
December 31, 2022 was primarily due to the net loss of $8.7 million, working capital changes which included an increase in accounts payable
and other liabilities of $1.3 million, an increase in accrued payroll of $0.4 million increase in inventory of $0.3 million, an increase
in accrued expenses of $0.2 million. Further contributing were deferred tax assets of $2.0 million increased for book to tax differences
related to stock option expense.  Offsetting these were primarily non-cash charges for stock-based compensation of $3.1 million,
and depreciation and amortization of $0.6 million.

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Investing Activities

Net cash used in investing activities of $0.8 million for the year ended
December 31, 2023, was for capital expenditures for research and development and manufacturing equipment.

Net cash used in investing activities of $2.8 million for the year ended
December 31, 2022, was for capital expenditures for manufacturing space, research and development laboratories and office equipment for
our corporate office and manufacturing facilities move.

Financing Activities

Net cash used in financing activities for the year ended December 31, 2023
of $0.2 million, was from a net between borrowings and payments on our note payable for insurance premium financing of $0.1 million, and
$0.1 million for payments on our finance leases.

The $0.3 million provided by financing activities
for the year ended December 31, 2022, was from $0.4 million in option exercises offset by $0.08 million in net borrowings on our indebtedness
for a note payable for insurance premium financing and $0.05 million in  equipment
financing.

Debt and Borrowing Capacity

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

Lease Commitments

We have finance and operating leases for our corporate office and certain
office and computer equipment.  Our two operating leases have remaining lease terms of 8.6 years and 5 years, respectively. Our three
finance leases have remaining lease terms of 3.4 years, 3 years, and 4.75 years, respectively.

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.

Subsequent Event

In March 2024, the Company received an assessment report from its notified
body in the EU, BSI, stating that, following BSI’s review of technical documentation submitted by the Company in connection with
a prior audit nonconformance, a recommendation for continued certification cannot be made.  The Company has filed an appeal to this
determination.  If the Company’s appeal is denied, then its EU certification may be suspended with respect to some or all of
the Company’s products as determined by a BSI review panel.  Management believes that the Company’s appeal will be successful
in limiting the scope of the suspension to have minimal impact on the Company’s revenues, if any.

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.

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Revenue Recognition

Our revenues are derived from three business sources: (i) domestic core
(which consists of US and Canada), (ii) international core, and (iii) novel therapies.  Our core domestic and international revenues
consist of sales of our syringe drivers, tubing and needles (“Product Revenue”) for the delivery of subcutaneous drugs that
are FDA cleared for use with the KORU Medical infusion system, with the primary delivery for immunoglobulin to treat Primary Immunodeficiency
Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”). Novel therapies consist of Product
Revenue 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 (“NRE”) revenues (including testing and registration services)
received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and commercial use across multiple drug
categories.

For Product Revenue, 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 Product Revenue.

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.

Rebates are provided to distributors for the difference in selling price
to distributor and pricing specified to select customers.  In addition, rebates are provided to customers for meeting growth targets.
Provisions for both distributor pricing and 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 growth target will be achieved.

We recognize NRE revenue under an input method, which recognizes revenue
on the basis of our efforts or inputs (for example, resources consumed, labor hours expended, costs incurred, or time elapsed) to the
satisfaction of a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation (i.e.
completion milestone). The input method that we use is based on costs incurred.

Contracts are often modified to account for changes in contract specifications
and requirements. Contract modifications exist when the modification either creates new, or changes existing, enforceable rights and obligations.
Generally, when contract modifications create new performance obligations, the modification is considered to be a separate contract and
revenue is recognized prospectively. When contract modifications change existing performance obligations, the impact on the existing transaction
price and measure of progress for the performance obligation to which it relates is generally recognized as an adjustment to revenue (either
as an increase in or a reduction of revenue) on a cumulative catch-up basis. Contract assets primarily represent revenue earnings over
time that are not yet billable based on the terms of the contracts. Contract liabilities (i.e., deferred revenue) consist of fees invoiced
or paid by the Company’s customers for which the associated performance obligations have not been satisfied and revenue has not
been recognized based on the Company’s revenue recognition criteria described above. As of December 31, 2023, the Company has recognized
a contract asset of zero which is included in other accounts receivable in the accompanying balance sheet.

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.

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.

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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.