KORU Medical Systems, Inc. (KRMD) FY 2025 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 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.

- 28 -

Table of Contents

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.

- 29 -

Table of Contents

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.

Net cash used in investing activities of $1.3 million for the year ended
December 31, 2024, was driven by capital expenditures for manufacturing equipment related to our production line for our next generation
consumables.

Financing Activities

Net cash used in financing activities of $0.2 million for the year ended
December 31, 2025 was primarily due to payments on our note payable for insurance premium financing, partially offset by new borrowings
for a subsequent insurance premium financing agreement. The insurance premium financing note was also paid off early, without penalty,
during the period.

Net cash used in financing activities of $0.2 million for the year ended
December 31, 2024 was primarily due to payments on our note payable for insurance premium financing, partially offset by new borrowings
for a subsequent insurance premium financing agreement. In addition, we had payments for taxes related to net share settlement of equity
awards of $0.1 million.

- 30 -

Table of Contents

Debt and Borrowing Capacity

Refer to “NOTE 5 — DEBT OBLIGATIONS” 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 three operating leases have remaining lease terms of 6.7 years, 3.1 years, and 2.4 years, respectively.
Our three finance leases have remaining lease terms of 1.4 years, 1.0 years, and 2.8 years, respectively.

Refer to “NOTE 6 — 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

Our revenues are derived from three business sources: (i) domestic core
(which consists of US and Canada), (ii) international core, and (iii) pharma services and clinical trials.  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”).
Pharma services and clinical trials 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.

- 31 -

Table of Contents

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, 2025, the Company has recognized
a contract asset of $319,955 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.

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.