KORU Medical Systems, Inc. (KRMD) FY 2022 MD&A

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

The following discussion and analysis of our financial condition and
results of operations should be read together with our consolidated financial statements and related notes included under ITEM 8 of this
Annual Report on Form 10-K.  This discussion contains forward-looking statements about our business and operations.  Our actual
results may differ materially from those we currently anticipate as a result of many factors, including those described under Part I –
FORWARD LOOKING STATEMENTS and elsewhere in this Annual Report.

OVERVIEW

The Company develops, manufactures and 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.