KORU Medical Systems, Inc. (KRMD)

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 ended the 2024 fiscal year with $33.6 million in net revenues,
an 18.0% increase compared with $28.5 million in the same period last year driven by growth in our core domestic and international business
of 12.3% and 31.5% respectively, and further driven by a 61.9% increase in our novel therapies business.

Gross profit, for the year ended December 31, 2024, was $21.3 million,
an increase of 27.7% or $4.6 million from the same period last year. Gross margin was 63.4% for the year ended December 31, 2024, an increase
from 58.6% 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, 2024, were $27.8 million,
up from $27.0 million for the same period last year.

RESULTS OF OPERATIONS

Year Ended December 31, 2024 compared to Year Ended December 31, 2023

Net Revenues

The following table summarizes our net revenues for the years ended December
31, 2024 and 2023:

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Total net revenues increased $5.1 million, or 18.0%, to $33.6 million,
for the year ended December 31, 2024, as compared with the same period last year. Domestic core growth of 12.3% 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 31.5% was driven by overall SCIg market growth, increased penetration in several established EU markets, and the entry into multiple
new geographic markets. Novel therapies net revenues increased $0.9 million, or 61.9%, driven primarily by an increase in NRE collaborations
and an increase in clinical trial supply shipments when compared to the prior year.

Gross Profit

Our gross profit for the years ended December 31, 2024, and 2023 is as
follows:

Gross profit increased $4.6 million, or 27.7%, to $21.3 million, in the
year ended December 31, 2024, compared to the same period in 2023 driven by the increase in net revenues of $5.1 million coupled with
significant gross margin improvement. Gross margin increased to 63.4% in the year ended 2024 compared to 58.6% for the year ended 2023,
primarily driven by increased manufacturing productivity, improved margin on product revenue mix, and increases in average selling prices
versus the prior year.

Operating Expenses

Our selling, general and administrative, research and development and depreciation
and amortization expenses for the years ended December 31, 2024, and 2023 are as follows:

Selling, general and administrative expenses increased $1.3 million, or
6.2%, to $21.6 million, during the year ended December 31, 2024 compared with the same period last year, primarily due to a $1.7 million
increase in compensation and benefits-related bonus accrual and sales commission related to year over year company performance, partially
offset by lower recruiting expenses and liability insurance costs.

Research and development expenses decreased $0.5 million, or 8.4%, to $5.3
million, during the year ended December 31, 2024 compared with the same period last year, primarily due to lower overall project spend
driven by timing, partially offset by CTO severance costs and an increase in compensation and benefits-related bonus accrual related to
year over year company performance.

Depreciation and amortization expense remained flat at $0.9 million during
the year ended December 31, 2024, as compared to $0.9 million during the same period in 2023, primarily driven by capital spending related
to projects.

Net Loss

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Our net loss decreased $7.7 million in the year ended December 31, 2024
compared with the same period last year, mostly driven by lower net operating losses of $3.8 million as a result of our gross profit improvement
of 27.7%, and an operating expense increase of 3%. In the prior year we established an allowance for the non-realization of deferred tax
assets which reversed a tax benefit of $4.0 million, partially offsetting in the current year was lower interest income of $0.1 million
driven by a lower cash balance coupled with lower yields.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity is our cash on hand of $9.6 million as
of December 31, 2024.  Our principal source of operating cash inflows is from sales of our products in our core business, NRE services,
and clinical trial products to our 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 2024 fiscal year were $27.8 million.

Our inventory position was $2.8 million at December 31, 2024, which reflects
a decrease of $0.7 million from December 31, 2023.

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 a
combination. 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 new 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 planned expansion.

Cash Flows

The following table summarizes our cash flows:

Operating Activities

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.

Net cash used in operating activities of $4.9 million for the year ended
December 31, 2023 was primarily due to the net loss of $13.7 million, 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 other changes
in working capital of $0.4 million.

Further contributing to this change were the establishment of an allowance
for non-realization of deferred tax assets of $4.0 million, stock-based compensation of $2.8 million, depreciation and amortization of
$0.9 million, and a loss on disposal of fixed assets of $0.1 million.

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Investing Activities

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.

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

Financing Activities

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.

Net cash used in financings activities of $0.2 million for the year ended
December 31, 2023, due to payments on our note payable for insurance premium financings, partially offset by the borrowings for the insurance
premium financing, and $0.1 million for payments on our finance leases.

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 7.7 years, 4.1 years, and 3.4 years, respectively.
Our three finance leases have remaining lease terms of 2.4 years, 2.0 years, and 3.8 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.

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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.

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.

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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 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.

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 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 standards for quality system management.

Our revenues derive from three business sources: (i) domestic core, (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 use being for the
delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy
(“CIDP”). Novel therapies 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.

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The Company continued 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 began
in 2021, and expects to complete the transition no later than 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 expects to complete the move of manufacturing before the
end of the first quarter 2023.

The Company ended the 2022 fiscal year with $27.9 million in net revenues,
a 18.8% increase compared with $23.5 million in the same period last year driven by growth in all three of our business sources.

Gross profit, for the year ended December 31, 2022, was $15.4 million,
an increase of 11.6% from the same period last year, and stated as a percentage of net revenues was 55.1%, a decline from 58.6% in the prior
year period.

Operating expenses for the year ended December 31, 2022, were $26.2 million,
up from $20.8 million for the same period last year, driven primarily by research and development, and selling, general and administrative
for new hires to support commercialization, business development, quality, and regulatory capabilities.

RESULTS OF OPERATIONS

Year Ended December 31, 2022 compared to Year Ended December 31, 2021

Net Revenues

The following table summarizes our net revenues for the years ended December
31, 2022 and 2021:

Total net revenues increased $4.4 million, or 18.8%, for the year
ended December 31, 2022, as compared with the same period last year. Double digit sales growth was achieved in our domestic core and
novel therapies businesses. Domestic core growth was primarily driven by increased volume attributed to SCIg market growth and new
label indications including prefill syringes and increases in average selling prices. Novel therapies sales grew by 329.8% for the
year ended 2022 related to services performed on an NRE innovation development agreement for a pharmaceutical customer and increases
in clinical trial product sales for several pharmaceutical customers. Sales growth in our international core business was driven by
volume growth in several EU markets compared with prior year.

Gross Profit

Our gross profit for the years ended December 31, 2022, and 2021 is as
follows:

Gross profit increased $1.6 million or 11.6% for the year ended December
31, 2022, compared to the same period in 2021. This increase was driven by increased volume and an increased average selling price in
net revenues of $4.4 million as described above. Gross profit as a percent of sales decreased to 55.1% compared to 58.6% from the prior year.
The decline in the gross profit percent was primarily caused by higher manufacturing costs associated with labor and materials,
production rework, and scrap related to our manufacturing transition. Product mix had a negative impact in our domestic core business
and NRE service revenue mix contributed to a lower gross profit percent. Partially offsetting these declines was an increase in average
selling prices.

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Selling, general and administrative and Research and development

Our selling, general and administrative and research and development costs
for the years ended December 31, 2022, and 2021 are as follows:

Selling, general and administrative expenses increased $2.7 million,
or 15.4%, during the year ended December 31, 2022 compared to the same period last year, primarily due to $2.5 million in
compensation and benefits related mostly to new hires in sales, quality and regulatory to support our strategic growth initiatives,
$0.8 million in executive severance, $0.4 million in building related expense, $0.3 million in travel related costs and $0.2 million
in stock compensation, which was partially offset by lower restructuring costs of $1.2 million, marketing research of $0.3 million,
and recruiting costs of $0.2 million.

Research and development expenses increased $2.5 million, or 100.4%, during
the year ended December 31, 2022 compared with the same period last year primarily due to $1.4 million in consulting spend primarily related
to new product development, $1.1 million in compensation and benefits for new hires to support product development for novel therapies
and $0.2 million in stock compensation, which was partially offset by $0.2 million in testing material expense.

Depreciation and amortization

For the year ended December 31, 2022, depreciation and amortization expense
increased $0.1 million, or 26.8%, compared with the same period last year due to investment in our new corporate office and manufacturing
site.

Net Loss

Our net loss for the year ended December 31, 2022 was $8.7 million compared
to net loss of $4.6 million for the same period last year driven by higher selling, general and administrative and research and development
expenses. The current year loss includes an income tax benefit of approximately $2.0 million.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity is our cash on hand of $17.4 million
as of December 31, 2022.  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, manufacturing technologies, facilities and equipment. Operating expenses for
the 2022 fiscal year were $26.1 million.

Our 2022 capital investments for manufacturing and leasehold improvements
for our new facility in Mahwah, NJ were $2.0 million, net of pre-approved financing arrangements and leasehold improvement credits totaling
$0.5 million and $0.2 million, respectively.

Our inventory position was $6.4 million at December 31, 2022, which reflected
an increase of $0.3 million from December 31, 2021. We expect to reduce our inventory position in 2023 following completion of the transition
of substantially all our manufacturing operations to Command, which we expect to be completed no later than the second quarter of 2023.

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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 determined that it qualified for this credit and anticipated utilizing
benefits under this act to aid its liquidity position and as a result recorded a receivable of $0.7 million as of December 31, 2021. As
of December 31, 2022, the credit has not been received.

We expect that our cash on hand, cash flows from operations and available
financing sources will be sufficient to meet our requirements at least through December 31, 2023. Continued execution on our longer-term
strategic plan may require the Company to 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 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 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 inventory of
$0.3 million, an increase in accrued expenses of $0.2 million, an increase in accrued payroll of $0.4 million and an increase in accounts
payable and other liabilities of $1.3 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.

Operating cash outflows were $4.3 million for the year ended December 31,
2021 and were 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 2022 compared with prior year, an increase in other receivables of $0.7 million for
the ERC refund and 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.

Investing Activities

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

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.

Financing Activities

The $0.3 million provided by financing activities for the year ended December
31, 2022, is 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 net equipment financing.

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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.

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

See “NOTE 10 — DEBT OBLIGATIONS” for further detail regarding
the promissory note and loan agreement in the accompanying “Notes to Financial Statements” appearing in this Annual Report
on Form 10-K.

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.

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

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 9.7 years and 3 months, respectively. On September
29, 2022, we extended our existing lease at 24 Carpenter Road, in Chester NY, through March 31, 2023 with the same payment terms. We moved
our administrative offices in June 2022 from this building into 43,975 square feet of a building located at 100 Corporate Drive, Mahwah,
New Jersey. The new lease commenced on March 1, 2022 and expires August 31, 2032. Our two finance leases, one commenced in June and the
other in October, have remaining lease terms of 4.4 and 4.8 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.

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,
(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
FREEDOM Infusion System, with the primary delivery for immunoglobulin to treat PIDD and 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.

For Product Revenues, 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.

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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.

Our novel therapies revenues can fluctuate and may not be consistent from
period to period. Engineering work performed on our product may be specialized and tailored to the specific needs of each independent
clinical trial and not uniform in nature. The clinical trial size and scope of protocols may also range greatly from customer to customer,
and there is no expectation of repeat customers on a consistent basis compared to our core business. 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 (ie completion milestone). The input method that we use is based on costs incurred.

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.

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.