UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~March 31,~~September 30, 2020

orOr

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission File Number:0-12305

REPRO MED SYSTEMS, INC.

(Exact name of registrant as specified in its charter)


New York	13-3044880
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

24 Carpenter Road, Chester, New York	10918
(Address of Principal Executive Offices)	(Zip Code)

(845) 469-2042

(Registrant’s telephone number, including area code)

~~N/A~~Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading ~~symbol(s)~~Symbol(s)	Name of each exchange on which registered
~~common~~Common stock, $0.01 par value	KRMD	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


	Large accelerated filer [ ]	Accelerated filer [ ]
	Non-accelerated filer [X]	Smaller reporting company [X]
		Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

As of ~~May 6,~~November 12, 2020, ~~39,694,745~~43,942,888 shares of common stock, $0.01 par value per share, were outstanding, which excludes 2,737,231 shares of treasury stock.

REPRO MED SYSTEMS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

TABLE OF CONTENTS


		PAGE

PART I–I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements (Unaudited)

	Balance Sheets as of ~~March 31,~~September 30, 2020 ~~(Unaudited)~~ and December 31, 2019	3

	Statements of Operations ~~(Unaudited)~~ for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019	4

	Statements of Cash Flows ~~(Unaudited)~~ for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019	5

	Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019	6-7

	Notes to Financial Statements	68

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1618

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	2124

ITEM 4.	Controls and Procedures	2124

PART II–II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	2225

ITEM 1A.	Risk Factors	2325

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2426

ITEM 6.	Exhibits	2426

	Signatures	27

- 2 -

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

REPRO MED SYSTEMS, INC.

BALANCE SHEETS

(Unaudited)


	March 31,
	2020			December 31,			September 30,			December 31,
	(Unaudited)			2019			2020			2019
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	7,427,679		$	5,870,929		$	32,433,811		$	5,870,929
Accounts receivable less allowance for doubtful accounts of $32,645 at March 31, 2020 and December 31, 2019		3,419,681			3,234,521
Accounts receivable less allowance for doubtful accounts of $24,676 and $32,645 at September 30, 2020 and December 31, 2019, respectively								3,736,596			3,234,521
Inventory		3,089,016			2,388,477			5,633,139			2,388,477
Prepaid expenses		543,454			387,396			844,496			387,396
TOTAL CURRENT ASSETS		14,479,830			11,881,323			42,648,042			11,881,323
Property and equipment, net		638,670			611,846			1,260,675			611,846
Patents, net of accumulated amortization of $303,425 and $288,967 at March 31, 2020 and December 31, 2019, respectively		873,225			807,135
Patents, net of accumulated amortization of $335,686 and $288,967 at September 30, 2020 and December 31, 2019, respectively								884,635			807,135
Right of use assets, net		340,118			373,734			271,679			373,734
Deferred tax asset		251,444			188,241			349,609			188,241
Other assets		19,812			19,582			19,812			19,582
TOTAL ASSETS	$	16,603,099		$	13,881,861		$	45,434,452		$	13,881,861

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Line of credit payable	$	1,500,000		$	—
Accounts payable		1,097,054			572,656			1,363,070			572,656
Accrued expenses		888,318			1,296,612			3,051,582			1,296,612
Accrued payroll and related taxes		229,836			190,265			440,144			190,265
Accrued tax liability		409,703			204,572			363,158			204,572
Finance lease liability - current		4,252			5,296
Operating lease liability - current		138,520			136,888
Finance lease liability – current								3,026			5,296
Operating lease liability – current								140,450			136,888
TOTAL CURRENT LIABILITIES		4,267,683			2,406,289			5,361,430			2,406,289
Finance lease liability, net of current portion		1,842			2,646			414			2,646
Operating lease liability, net of current portion		201,598			236,846			131,229			236,846
TOTAL LIABILITIES		4,471,123			2,645,781			5,493,073			2,645,781

Commitments and contingencies (Refer to Note 3)
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value; 75,000,000 shares authorized, 42,423,977 and 42,239,788 shares issued, 39,686,746 and 39,502,557 shares outstanding at March 31, 2020 and December 31, 2019, respectively		424,240			422,398
Common stock, $0.01 par value; 75,000,000 shares authorized, 46,671,807 and 42,239,788 shares issued, 43,934,576 and 39,502,557 shares outstanding at September 30, 2020 and December 31, 2019, respectively								466,718			422,398
Additional paid-in capital		6,737,695			6,293,069			35,331,483			6,293,069
Treasury stock, 2,737,231 shares at September 30, 2020 and December 31, 2019, respectively, at cost								(344,204	)		(344,204	)
Retained earnings		5,314,245			4,864,817			4,487,382			4,864,817
		12,476,180			11,580,284
Less: Treasury stock, 2,737,231 shares at March 31, 2020 and December 31, 2019, respectively, at cost		(344,204	)		(344,204	)
TOTAL STOCKHOLDERS’ EQUITY		12,131,976			11,236,080			39,941,379			11,236,080
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	16,603,099		$	13,881,861		$	45,434,452		$	13,881,861

~~The~~See accompanying ~~notes are an integral part of these financial statements~~Notes to Financial Statements.

- 3 -

REPRO MED SYSTEMS, INC.

STATEMENTS OF OPERATIONS

~~(UNAUDITED)~~(Unaudited)


	For the Three Months Ended						Three Months Ended						Nine Months Ended
	March 31,						September 30,						September 30,
	2020			2019			2020			2019			2020			2019

NET SALES	$	6,330,009		$	4,974,278		$	6,080,315		$	6,617,397		$	20,119,228		$	16,940,487
Cost of goods sold		2,541,799			1,926,324			2,139,592			2,234,489			7,480,415			6,033,961
Gross Profit		3,788,210			3,047,954			3,940,723			4,382,908			12,638,813			10,906,526

OPERATING EXPENSES
Selling, general and administrative		2,762,980			2,484,868			3,075,169			2,441,381			9,039,980			6,976,684
Litigation		99,158			492,515			675			864,009			2,446,747			2,481,471
Research and development		256,025			101,959			390,416			170,260			944,637			450,454
Depreciation and amortization		87,224			83,651			115,637			82,774			297,801			252,594
Total Operating Expenses		3,205,387			3,162,993			3,581,897			3,558,424			12,729,165			10,161,203

Net Operating Profit/(Loss)		582,823			(115,039	)		358,826			824,484			(90,352	)		745,323

Non-Operating Income
Loss on currency exchange		(10,497	)		(9,690	)
Loss on sale of fixed asset		—			(240	)
Non-Operating Income/(Expense)
Gain/(Loss) on currency exchange								1,927			(9,358	)		(11,164	)		(20,283	)
Gain on disposal of fixed assets, net								22,113			—			16,591			49,740
Interest income, net		19,030			17,480			9,662			23,368			23,690			59,091
TOTAL OTHER INCOME		8,533			7,550
TOTAL OTHER INCOME/(EXPENSE)								33,702			14,010			29,117			88,548

INCOME/(LOSS) BEFORE TAXES		591,356			(107,489	)
INCOME/(LOSS) BEFORE INCOME TAXES								392,528			838,494			(61,235	)		833,871

Income Tax (Expense)/Benefit		(141,928	)		22,099
Income Tax Expense								(143,353	)		(186,681	)		(316,200	)		(189,265	)

NET INCOME/(LOSS)	$	449,428		$	(85,390	)	$	249,175		$	651,813		$	(377,435	)	$	644,606

NET INCOME/(LOSS) PER SHARE

Basic	$	0.01		$	0.00		$	0.01		$	0.02		$	(0.01	)	$	0.02
Diluted	$	0.01		$	0.00		$	0.01		$	0.02		$	(0.01	)	$	0.02

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING

Basic		39,675,107			38,203,606			43,914,542			39,022,298			41,326,815			38,534,021
Diluted		39,874,989			39,033,623			44,119,511			39,298,408			41,326,815			38,734,083

~~The~~See accompanying ~~notes are an integral part of these financial statements~~Notes to Financial Statements.

- 4 -

REPRO MED SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

~~(UNAUDITED)~~(Unaudited)

For the
Three Months Ended

March 31,

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net Income/(Loss)

$
449,428

$
(85,390
)
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

Stock based compensation expense

360,968

298,125

Depreciation and amortization

87,224

83,651

Deferred capital gain - building lease

—

(3,763
)
Deferred taxes

(63,203
)

25,594

Loss on disposal of fixed asset

—

240

Changes in operating assets and liabilities:

Increase in accounts receivable

(185,160
)

(1,229,419
)
Increase in inventory

(700,539
)

(404,805
)
Increase in prepaid expense and other assets

(156,288
)

(40,024
)
Increase in accounts payable

524,398

489,593

Increase/(Decrease) in accrued payroll and related taxes

39,571

(173,665
)
(Decrease)/Increase in accrued expense

(408,294
)

11,238

Increase/(Decrease) in accrued tax liability

205,131

(16,608
)
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES

153,236

(1,045,233
)

CASH FLOWS FROM INVESTING ACTIVITIES

Payments for capital expenditures

(99,591
)

(41,626
)
Purchase certificate of deposit

—

(6,489
)
Payments for patents

(80,547
)

(48,718
)
NET CASH USED IN INVESTING ACTIVITIES

(180,138
)

(96,833
)

CASH FLOWS FROM FINANCING ACTIVITIES

Line of credit advance

1,500,000

—

Share issuances

85,500

—

Payment for cancelled shares

—

(2,820
)
Finance lease

(1,848
)

(1,028
)
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES

1,583,652

(3,848
)

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

1,556,750

(1,145,914
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

5,870,929

3,738,803

CASH AND CASH EQUIVALENTS, END OF PERIOD

$
7,427,679

$
2,592,889

Supplemental Information

Cash paid during the periods for:

Interest

$
87

$
174

Taxes

$
—

$
—

NON-CASH FINANCING AND INVESTING ACTIVITIES

Issuance of common stock as compensation

$
60,002

$
176,250


	Nine Months Ended
	September 30,
	2020			2019

CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss)/Income	$	(377,435	)	$	644,606
Adjustments to reconcile net (loss)/income to net cash provided by/(used in) operating activities:
Stock-based compensation expense		1,191,146			897,300
Stock-based litigation settlement expense		1,285,102			—
Depreciation and amortization		297,801			252,594
Deferred capital gain - building lease		—			(3,763	)
Deferred taxes		(161,368	)		134,563
Gain on disposal of fixed assets		(16,591	)		(49,740	)
Changes in operating assets and liabilities:
Increase in accounts receivable		(502,075	)		(2,120,780	)
Increase in inventory		(3,244,662	)		(634,803	)
Increase in prepaid expenses and other assets		(457,330	)		(206,560	)
Increase in accounts payable		790,414			421,479
Increase/(Decrease) in accrued payroll and related taxes		249,879			(310,355	)
Increase in accrued expenses		1,754,970			490,053
Increase/(Decrease) in accrued tax liability		158,586			(16,608	)
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES		968,437			(502,014	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(908,323	)		(158,193	)
Purchases of patents		(124,216	)		(188,274	)
Proceeds from disposal of property and equipment		25,000			217,821
Proceeds from certificate of deposit		—			1,517,927
NET CASH (USED IN)/PROVIDED BY INVESTING ACTIVITIES		(1,007,539	)		1,389,281

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of equity		26,606,486			508,900
Payments for cancelled shares		—			(2,820	)
Borrowings from indebtedness		4,976,508			—
Payments on indebtedness		(4,976,508	)		—
Payments on finance lease liability		(4,502	)		(3,122	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		26,601,984			502,958

NET INCREASE IN CASH AND CASH EQUIVALENTS		26,562,882			1,390,225
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		5,870,929			3,738,803
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	32,433,811		$	5,129,028

Supplemental Information
Cash paid during the periods for:
Interest	$	27,698		$	280
Income taxes	$	318,983		$	103,465

~~The~~See accompanying ~~notes are an integral part of these financial statements~~Notes to Financial Statements.

- 5 -

REPRO MED SYSTEMS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


				Additional									Total
	Common Stock			Paid-in			Retained			Treasury			Stockholders’
	Shares	Amount		Capital			Earnings			Stock			Equity

Three and Nine Months Ended September 30, 2020

BALANCE, DECEMBER 31, 2019	42,239,788	$	422,398	$	6,293,069		$	4,864,817		$	(344,204	)	$	11,236,080

Issuance of stock-based compensation	9,189		92		59,910			—			—			60,002
Compensation expense related to stock options	—		—		300,966			—			—			300,966
Cancellation of common stock	—		—		—			—			—			—
Issuance upon options exercised	175,000		1,750		83,750			—			—			85,500
Net income	—		—		—			449,428			—			449,428
BALANCE, MARCH 31, 2020	42,423,977	$	424,240	$	6,737,695		$	5,314,245		$	(344,204	)	$	12,131,976

Issuance of stock-based compensation	7,999		80		59,922			—			—			60,002
Compensation expense related to stock options	—		—		363,851			—			—			363,851
Litigation settlement options	—		—		347,008			—			—			347,008
Litigation settlement share issuance	95,238		952		937,142			—			—			938,094
Issuance upon options exercised	519,156		5,192		5,189			—			—			10,381
Capital raise	3,593,750		35,937		26,436,043			—			—			26,471,980
Net loss	—		—		—			(1,076,038	)		—			(1,076,038	)
BALANCE, JUNE 30, 2020	46,640,120	$	466,401	$	34,886,850		$	4,238,207		$	(344,204	)	$	39,247,254

Issuance of stock-based compensation	6,681		67		59,935			—			—			60,002
Compensation expense related to stock options	—		—		346,323			—			—			346,323
Issuance upon options exercised	25,006		250		(250	)		—			—			—
Capital raise	—		—		38,625			—			—			38,625
Net income	—		—		—			249,175			—			249,175
BALANCE, SEPTEMBER 30, 2020	46,671,807	$	466,718	$	35,331,483		$	4,487,382		$	(344,204	)	$	39,941,379

See accompanying Notes to Financial Statements.

- 6 -

REPRO MED SYSTEMS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


						Additional									Total
	Common Stock					Paid-in			Retained			Treasury			Stockholders’
	Shares		Amount			Capital			Earnings			Stock			Equity

Three and Nine Months Ended September 30, 2019

BALANCE, DECEMBER 31, 2018	40,932,911		$	409,329		$	4,595,214		$	4,300,468		$	(344,204	)	$	8,960,807

Issuance of stock-based compensation	8,914			89			176,161			—			—			176,250
Compensation expense related to stock options	—			—			121,875			—			—			121,875
Repurchase of shares	(2,000	)		(20	)		(2,800	)		—			—			(2,820	)
Net loss	—			—			—			(85,390	)		—			(85,390	)
BALANCE, MARCH 31, 2019	40,939,825		$	409,398		$	4,890,450		$	4,215,078		$	(344,204	)	$	9,170,722

Issuance of stock-based compensation	116,386			1,164			35,484			—			—			36,648
Compensation expense related to stock options	—			—			194,765			—			—			194,765
Issuance upon options exercised	65,000			650			24,050			—			—			24,700
Net income	—			—			—			78,183			—			78,183
BALANCE, JUNE 30, 2019	41,121,211		$	411,212		$	5,144,749		$	4,293,261		$	(344,204	)	$	9,505,018

Issuance of stock-based compensation	12,447			124			43,502			—			—			43,626
Compensation expense related to stock options	—			—			324,135			—			—			324,135
Issuance upon warrants exercised	1,000,000			10,000			440,000			—			—			450,000
Issuance upon options exercised	95,000			950			33,250			—			—			34,200
Net income	—			—			—			651,813			—			651,813
BALANCE, SEPTEMBER 30, 2019	42,228,658		$	422,286		$	5,985,636		$	4,945,074		$	(344,204	)	$	11,008,792

See accompanying Notes to Financial Statements.

- 7 -

REPRO MED SYSTEMS, INC.

NOTES TO ~~THE UNAUDITED~~ FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

REPRO MED SYSTEMS, INC. (the ~~“Company”,~~“Company,” “KORU ~~Medical”~~Medical,” “we,” “us” or ~~“we”~~“our”) 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. The Company operates as one segment.

~~FISCAL YEAR END~~

~~The Company’s fiscal year end is December 31.~~

BASIS OF PRESENTATION

The accompanying unaudited financial statements as of March 31, 2020, have been prepared in accordance with generally accepted accounting principles and with instructions to SEC regulation S-X for interim financial statements.

In the opinion of the Company’s management, the financial statements contain all adjustments consisting of normal recurring accruals necessary to present fairly the Company’s financial position as of March 31, 2020, and the results of operations and cash flows for the three month period ended March 31, 2020, and 2019.

~~The results of operations for the three months ended March 31, 2020 and 2019 are not necessarily indicative of the results to be expected for the full year. These interim~~ financial statements should be read in conjunction with the ~~financial statements and notes thereto of the Company and management’s discussion and analysis of financial condition and results of operations included in the~~ Company’s ~~Annual Report~~annual report on Form 10-K for the ~~twelve months~~year ended December 31, 2019 ~~as filed~~(“Annual Report”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been condensed or omitted from the ~~Securities~~accompanying financial statements. The accompanying year-end balance sheet was derived from the audited financial statements included in the Annual Report. The accompanying interim financial statements are unaudited and ~~Exchange Commission on Form 10-K.~~reflect all adjustments which are in the opinion of management necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented. All such adjustments are of a normal, recurring nature. The Company’s results of operations and cash flows for the interim periods are not necessarily indicative of the results of operations and cash flows that it may achieve in future periods.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all short-term investments with an original maturity of three months or less to be cash equivalents. The Company holds cash in excess of $250,000 at its depository, which exceeds the FDIC insurance limits and is, therefore, uninsured.

CERTIFICATE OF DEPOSIT

The certificate of deposit was recorded at cost plus accrued interest. The certificate of deposit earned interest at a rate of 1.73% and matured in May 2019.

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.

PATENTS

Costs incurred in obtaining patents have been capitalized and are being amortized over the legal life of the patents.

INCOME TAXES

Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences.

~~- 6 -~~

The Company believes that it has no uncertain tax positions requiring disclosure or adjustment. Generally, tax years starting with 2017 are subject to examination by income tax authorities.

PROPERTY, EQUIPMENT, AND DEPRECIATION

Property and equipment is stated at cost and is depreciated using the straight-line method over the estimated useful lives of the respective assets.

- 8 -

STOCK-BASED COMPENSATION

The Company maintains a stock option plan under which it grants stock options to certain executives, key employees and consultants. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. All options are charged against income at their fair value. The entire compensation expense of the award is recognized over the vesting period. Shares of stock granted for director fees are recorded at the fair value of the shares at the grant date.

NET INCOME PER COMMON SHARE

Basic earnings per share are computed on the weighted average of common shares outstanding during each year. Diluted earnings per share include only an increase in the weighted average shares by the common shares issuable upon exercise of employee and consultant stock options. See “NOTE 4 — STOCK-BASED COMPENSATION” for further detail.


	Three Months Ended
	September 30, 2020		September 30, 2019

Net income	$	249,175	$	651,813

Weighted Average Outstanding Shares:
Outstanding shares		43,914,542		39,022,298
Option shares includable		204,969		276,110
		44,119,511		39,298,408

Net income per share
Basic	$	0.01	$	0.02
Diluted	$	0.01	$	0.02


	Nine Months Ended
	September 30, 2020			September 30, 2019

Net (loss)/income	$	(377,435	)	$	644,606

Weighted Average Outstanding Shares:
Outstanding shares		41,326,815			38,534,021
Option shares includable		—	^(a)		200,062
		41,326,815			38,734,083

Net income per share
Basic	$	(0.01	)	$	0.02
Diluted	$	(0.01	)	$	0.02

__________

(a) Option shares of 203,121 were not included as the impact is anti-dilutive.

USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

The preparation of financial statements in conformity with ~~U.S. generally accepted accounting principles (“U.S. GAAP”)~~GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Important estimates include but are not limited to asset lives, valuation allowances, inventory valuation, and accruals.

REVENUE RECOGNITION

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2014-09—~~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.

- 9 -

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 ~~volume~~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’s~~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 following table summarizes net sales by geography for the three and nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Sales
Domestic	$	5,372,536	$	5,856,203	$	17,459,212	$	14,308,994
International		707,779		761,194		2,660,016		2,631,493
Total	$	6,080,315	$	6,617,397	$	20,119,228	$	16,940,487

LEASES

In February 2016, the FASB issued a ~~new~~ standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by the Company for those leases classified as operating leases under current ~~U.S.~~ GAAP, while our accounting for capital leases remains substantially unchanged. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard became effective for us on January 1, 2019. The standard had a material impact on our balance sheets but did not have a material impact on our ~~income statements.~~statements of operations. See ~~NOTE~~“NOTE 6 ~~LEASES.~~ — LEASES” for further detail.

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure for Fair Value Measurement. The amendments in this ASU modify the disclosure requirements on fair value measurements in Topic 820 based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this ASU. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The Company adopted this standard on January 1, 2020 and it had no impact on our financial statement disclosures.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, for all entities. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted this new accounting guidance on January 1, 2020, on a prospective basis. The implementation of this standard did not have a material impact on the Company’s operating results, cash flows, financial condition or related disclosures.

- 710 -

~~RECENTLY ISSUED~~ ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In June 2016, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~Accounting Standards Update (“ASU”)~~ASU No. ~~2016-13—~~2016-13, Financial Instruments – Credit Losses (Topic 326);: Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income ~~Taxes.~~Taxes. The amendments in this ASU simplify the accounting for income taxes by removing several exceptions including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform, which provided elective amendments for entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments may be applied to impacted contracts and hedges prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance will have on its financial statements.

The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material effect on our financial condition or results of operations.

FAIR VALUE ~~OF FINANCIAL INSTRUMENTS~~MEASUREMENTS

Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable:


•	Level 1 – Quoted prices in active markets for identical assets or liabilities.

•	Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.

•	Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Value is determined using pricing models, discounted cash flow methodologies, or similar techniques and includes instruments for which the determination of fair value requires significant judgment or estimation.

The carrying amounts ~~reported in the balance sheet for~~of cash ~~trade receivables,~~and cash equivalents, accounts receivable, prepaid expenses, accounts payable and accrued expenses ~~approximate~~are considered to be representative of their fair values because of the short-term nature of those instruments. There were no transfers between levels in the fair value ~~based on~~hierarchy during the ~~short-term maturity of these instruments.~~nine months ended September 30, 2020.

~~ACCOUNTING FOR~~- 11 -

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews ~~its~~ long-lived assets for impairment ~~at least annually~~whenever events or ~~whenever the~~changes in circumstances ~~and situations change such that there is an indication~~indicate that the carrying ~~amounts~~amount of the assets may not be fully recoverable. AsAn impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of ~~March 31, 2020,~~ the ~~Company does not believe that any~~asset and its eventual disposition are less than the carrying amount. The impairment loss, if recognized, would be based on the excess of the carrying value of the impaired asset over its ~~assets are impaired.~~respective fair value. No impairment losses have been recorded through September 30, 2020.

RECLASSIFICATION

Certain reclassifications have been made to conform prior period data to the current presentation. These reclassifications had no effect on reported net income.

NOTE 2 — PROPERTY AND EQUIPMENT

Property and equipment consists of the following at:


	March 31, 2020			December 31, 2019
							September 30, 2020			December 31, 2019
Furniture, office equipment, and leasehold improvements		1,165,811			1,135,107		$	1,291,985		$	1,135,107
Manufacturing equipment and tooling		1,362,984			1,295,978			1,856,881			1,295,978
		2,528,795			2,431,085
Total property and equipment								3,148,866			2,431,085
Less: accumulated depreciation		(1,890,125	)		(1,819,239	)		(1,888,191	)		(1,819,239	)
Property and equipment, net	$	638,670		$	611,846		$	1,260,675		$	611,846

Depreciation expense was ~~$72,768~~$99,071 and ~~$73,515~~$69,740 for the three months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~2019, respectively, and $251,084 and $218,328 for the nine months ended September 30, 2020 and 2019, respectively.

~~- 8 -~~

NOTE 3 — COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

~~We are~~The Company has been and may again become involved in ~~several lawsuits~~legal proceedings, claims and litigation arising in the ordinary course of business. Except as described below, KORU Medical is not presently a party to any litigation or other legal proceeding that is believed to be material to its financial condition.

Litigation

Refer to Form 10-Q for the quarterly period ended June 30, 2020 regarding the dismissed case with our principal competitor, EMED Technologies Corporation (“EMED”). EMED has alleged that our needle sets infringe various patents controlled by EMED. Certain of these lawsuits also allege antitrust violations, unfair business practices, and various other business tort claims. We are vigorously defending against all of the lawsuits brought by EMED. Although no assurances can be given, we believe we have meritorious defenses to all of EMED’s claims.

The initial case involving EMED was filed by us in the United States District Court for the Eastern District of California on September 20, 2013 (the “California case”), in response to a letter from EMED claiming patent infringement by us, and seeking a declaratory judgment establishing the invalidity of the patent referenced in the letter – EMED’s US patent 8,500,703 – “’703.” EMED answered the complaint and asserted patent infringement of the ’703 patent and several counterclaims relating generally to claims of unfair business practices against us. We responded by adding several claims against EMED, generally relating to claims of unfair business practices on EMED’s part. Both parties have requested injunctive relief and monetary damages in unspecified amounts. On June 16, 2015, the California court entered a preliminary injunction against KORU Medical for making certain statements regarding products cleared for use by the FDA, or that could be safely used, with KORU Medical’s Freedom60 pump, without voiding the product warranty. On September 11, 2015, we requested an ex parte reexamination of the ’703 patent by the US Patent and Trademark Office (“USPTO”). The ex parte reexamination resulted in a Final Office Action, dated July 19, 2017, rejecting all of EMED’s claims in the issued patent. On January 25, 2018, EMED filed an Appeal Brief with a Petition for Revival, which was accepted. On April 9, 2018, the USPTO denied EMED’s request for reconsideration of the order rejecting all claims in the ’703 patent. On June 26, 2019, the Examiner responded to EMED’s appeal brief and maintained all of the final rejections. On December 31, 2019, the Patent Trial and Appeal Board (“PTAB”) of the USPTO issued its decision sustaining the invalidity of claims 1-10 of the ’703 patent, but reversing the Examiner’s rejection of claim 11, leaving claim 11 as the only surviving claim of the ’703 patent. Claim 11 of the ’703 patent, however, was not asserted in the California case. EMED has informed KORU Medical it will neither appeal the PTAB’s decision nor pursue a claim based on infringement of claim 11 of the ’703 patent in the California case. EMED also has moved to dismiss the ’703 patent claims from the California case. That motion and the non-patent claims asserted by the parties in the California case remain pending.

The second court case was filed by EMED in the United States District Court for the Eastern District of Texas (the “Texas Court”) on June 25, 2015, claiming patent infringement on another of its patents (US 8,961,476 – “’476”), by our needle sets, and seeking unspecified monetary damages (“ED Texas ’476 matter”). This ’476 patent is related to the now rejected EMED ’703 patent.

On September 17, 2015, we requested an inter partes review (“IPR”) of the ’476 patent, and in response to our request, the Court entered an order staying the ED Texas ’476 matter until after the PTAB made a decision regarding the validity of the patent. On January 12, 2017, the PTAB issued its Final Written Decision in our favor, invalidating all but one (“dependent Claim 9”) of the claims in the ’476 patent. EMED appealed the PTAB’s ruling to the United States Court of Appeals for the Federal Circuit, which affirmed the PTAB’s Final Written Decision in our favor on April 3, 2018. On April 18, 2018, EMED filed a petition for en banc rehearing, which was denied. On August 16, 2018, EMED petitioned the United States Supreme Court for a Writ of Certiorari to review the Federal Circuit’s upholding the PTAB’s Final Written Decision. On October 29, 2018, the United States Supreme Court denied EMED’s Petition for a Writ of Certiorari, thus finally affirming the PTAB’s invalidation of ’476, save for one dependent claim.

Following the PTAB’s Final Written Decision in the IPR regarding the ’476 patent, EMED filed a new patent application claiming priority back to the application that issued as ’703, which is the patent at issue in the California case. Submitted for accelerated examination, this new application issued as US 9,808,576 – “’576” on November 7, 2017. On this same date, EMED filed a new case (the “third case”) in the Texas Court claiming patent infringement of ’576, also directed to our needle sets, and seeking unspecified damages and a preliminary injunction against marketing and sales of our needle sets. We filed a Motion to Dismiss or Transfer Venue to the United States District Court for the Southern District of New York (“SDNY”), which resulted in the transfer of the third case to SDNY (“SDNY ’576 matter”) on May 30, 2018.

On April 23, 2018, EMED filed a new civil case (the “fourth case”) against us in the Texas Court asserting antitrust, defamation and unfair business practice claims, and seeking unspecified damages, similar to those previously presented in the California case, described above. The fourth case also names Andrew Sealfon, then President and CEO of KORU Medical, individually as a defendant. As the result of a hearing on November 14, 2018, on December 7, 2018, the Court entered an order transferring the fourth case to the United States District Court for the Eastern District of California (the “California Court”). The California Court set an initial schedule for a preliminary motion phase and on August 30, 2019 EMED filed a second amended complaint. On September 30, 2019, KORU Medical and Sealfon filed a motion to dismiss that complaint, and Sealfon filed a separate motion to dismiss the case as to him for lack of jurisdiction. Ultimately, we expect this case to be coordinated or consolidated with the California case, or dismissed, as the California Court sees fit.

~~- 9 -~~

At the same hearing on November 14, 2018, the Texas Court granted EMED leave to amend its infringement contentions, following the IPR decision invalidating all but one claim of the ’476 patent, in order to assert infringement of that sole remaining claim, namely dependent Claim 9. The Texas Court’s order allowing EMED’s amendment of its infringement contentions against us was entered on December 7, 2018.

The ED Texas ’476 matter proceeded under EMED’s amended infringement contention to incorporate the surviving dependent Claim 9, which incorporates Claims 1 and 8 of the ’476 patent, meaning that, to prove infringement on our part, EMED must prove more elements of infringement than it originally charged against us. In April 2019, EMED served its damages expert’s report opining that EMED’s past infringement damages amount to $1.5 million, and in May KORU Medical served its damages expert’s rebuttal report opining that EMED’s expert miscalculated damages which if properly calculated would amount to less than $100,000. The Texas Court had set a trial date of August 19, 2019, for the trial of the ED Texas ’476 matter. On June 24, 2019, the Texas Court Magistrate Judge issued a Report and Recommendation decision finding no infringement, literally or under the doctrine of equivalents, by KORU Medical’s accused products. EMED filed its objections on June 26, 2019. On June 28, 2019, the Texas Court issued a Final Judgment in favor of KORU Medical and adopted the decision of the Magistrate Judge that was issued on June 24, 2019, overruled EMED’s objections, awarded court costs to KORU Medical, and dismissed the case. A final judgment has been entered. KORU Medical has submitted its Bill of Costs for approximately $16,000 and has moved to declare the case exceptional and for recovery of its attorney fees and expenses of approximately $2.3 million in defense of EMED’s assertion of the ’476 Patent. EMED has objected to our Bill of Costs, opposed the motion for fees, and filed a notice of appeal of the non-infringement judgment to the Court of Appeals for the Federal Circuit (the “CAFC”). On September 16, 2019, EMED filed its opening appeal brief. On October 28, 2019, KORU Medical filed its responsive brief, and on November 7, 2019 EMED filed its reply brief. On November 20, 2019, KORU Medical filed a motion for leave to file a sur-reply brief to respond to a new argument raised by EMED in its reply brief, which EMED opposed, and which the CAFC referred to the judicial panel that will hear the appeal for consideration. On April 9, 2020, the CAFC issued a unanimous decision affirming the ED Texas Court’s judgment of non-infringement. The Texas Court had stayed proceedings in the district court until the appeal process is completed, and the parties will now meet and confer regarding when to return to the district court to lift the stay and address KORU Medical’s fee motion which remains pending.

The SDNY ’576 matter proceeded in the New York court through claim construction on the ’576 Patent, whereupon KORU Medical sought permission from the New York court to file a motion for summary judgement, to which EMED objected. The New York court granted KORU Medical’s request, and on July 10, 2019, KORU Medical filed its motion for summary judgement. EMED opposed that motion, and on August 30, 2019, the New York court granted summary judgement, and dismissed the lawsuit. A final judgement has been entered. KORU Medical has submitted a Bill of Costs for approximately $1,500, to which EMED has objected, and has moved the New York court to declare the case exceptional and for recovery of its attorney fees and expenses of at least $1.16 million. EMED has opposed that motion, which was referred to a United States District Court Magistrate Judge to prepare a report and recommendation. On November 12, 2019, the Magistrate Judge issued a Report and Recommendation that KORU Medical’s fee motion be granted, and KORU Medical be awarded approximately $1.1 million in fees and expenses. EMED has filed objections to the Report and Recommendation, to which KORU Medical has responded, and which objections are now pending before the District Court Judge for resolution. EMED has also appealed the New York court’s judgment of non-infringement to the CAFC, which matter also is pending. EMED’s opening appeal brief was due November 8, 2019, but EMED filed its brief on November 12, 2019. EMED filed a motion to extend the time to file its opening brief, which KORU Medical opposed, but the motion was granted. KORU Medical filed its responsive brief on December 23, 2019, on January 9, 2020 EMED filed the joint appendix in support of the parties’ briefing, and on January 13, 2020, EMED filed its reply brief. The appeal remains pending, waiting for the CAFC Court to schedule oral argument.

As is required by the respective Courts in both the SDNY ’576 matter and the ED Texas ’476 matter, the parties have engaged in settlement discussions and have conducted a court-sponsored mediation session, which did not result in settlement.

Although we believe KORU Medical has meritorious claims and defenses in all of the above-described actions and proceedings, their outcomes cannot be predicted with any certainty. If any of these actions against us are successful, they could have a material adverse effect on our business, results of operations, financial condition and cash flows.

NOTE 4 — STOCK-BASED COMPENSATION

On June 29, 2016, the Board of Directors amended the Company’s 2015 Stock Option Plan (as amended, the “Plan”) authorizing the Company to grant awards to certain executives, key employees, and consultants under the Plan, which was approved by shareholders at the Annual Meeting of Shareholders held on September 6, 2016. The total number of shares of Common Stock, with respect to which awards may be granted pursuant to the Plan, may not exceed 6,000,000 pursuant to an amendment to the Plan approved by shareholders on April 23, 2019, at the 2019 Annual Meeting of Shareholders.

On May 20, 2020, the Company entered into a Settlement Agreement related to its litigation with EMED as described above in “NOTE 3 — COMMITMENTS AND CONTINGENCIES.” Pursuant to the Settlement Agreement, the Company issued to EMED (i) 95,238 restricted stock units, which vested on May 21, 2020 and 95,238 restricted stock units vesting on January 1, 2021, and (ii) an option to purchase up to 400,000 shares of the Company’s common stock at an exercise price of $11.21 per share prior to February 1, 2021, which can be settled in cash in lieu of common stock at the Company’s sole discretion, provided that the number of shares of common stock and/or amount of cash paid by the Company upon exercise will be capped at a value of $16.21 per share. The option was recorded at $347,008, the estimated fair value of the option using the Black-Scholes option pricing model with a volatility rate of 52.68% and a risk-free rate of 0.17%. The Settlement Agreement includes mutual releases and covenants not to sue for any claim arising before May 20, 2020 and the Company covenants not to challenge any EMED patents that were the subject of the Claims unless EMED asserts them in the future against Company products. This was a non-cash settlement from which we recognized expense in the amount of $2.2 million in the second quarter of 2020.

- 1012 -

As of March 31, 2020, the Company had options to purchase 4,472,000 shares of Common Stock outstanding to certain executives, key employees and consultants under the Plan, of which none were issued during the three months ended March 31, 2020.

On February 20, 2019, the Board of Directors of the Company approved an increase in compensation for each non-employee director from $25,000 to $50,000 annually effective January 1, 2019, and an additional $10,000 annually for the chair of each Board committee effective February 20, 2019, in each case to be paid quarterly half in cash and half in common stock at the end of each fiscal quarter. On September 30, 2019, the Board of Directors of the Company named R. John Fletcher, a current KORU Medical director, as Chairman, replacing Executive Chairman, Daniel S. Goldberger, who remains a non-executive member of KORU Medical’s Board of Directors. In Mr. Fletcher’s role as Chairman, he receives an additional $50,000 in annual compensation, to be paid quarterly in shares of KORU Medical common stock based on the closing price of the stock on the last day of each quarter.

Pursuant to Daniel S. Goldberger’s employment agreement dated October 12, 2018, on February 1, 2019, when Donald B. Pettigrew was appointed to President and Chief Executive Officer, Mr. Goldberger was awarded a performance bonus in the amount of $270,000 to be paid half in cash and half in stock. The number of shares that were issued totaled 90,604 and was based upon the closing price of the Common Stock of the Company on February 1, 2019, as reported by the OTCQX. These shares were issued on April 3, 2019.

2015 STOCK OPTION PLAN, as amended

Time Based Stock Options

The per share weighted average fair value of stock options granted during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2019 was ~~zero~~$6.53 and ~~$1.10,~~$1.33, respectively. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2019. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued.


	March 31,				September 30,
	2020		2019		2020		2019

Dividend yield		—		0.00%		0.00%		0.00%
Expected Volatility		—		59.4%-60.3%		62.11 – 62.18%		56.10 – 60.70%
Weighted-average volatility		—		—		—		—
Expected dividends		—		—		—		—
Expected term (in years)		—		10		10 Years		10 Years
Risk-free rate		—		2.64-2.72%		0.63 – 0.64%		1.60 – 2.72%

The following table summarizes the status of the Plan with respect to time based stock options:


	Three Months Ended March 31,							Nine Months Ended September 30,
	2020			2019				2020			2019
	Shares	Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price

Outstanding at January 1	3,647,000	$	1.32		2,419,000	$	1.00	3,647,000	$	1.32	2,419,000	$	1.00
Granted	—	$	—		1,050,000	$	1.57	360,000	$	9.54	1,650,000	$	1.92
Exercised	175,000	$	0.49		—	$	—	747,006	$	0.65	160,000	$	0.37
Forfeited	—	$	—		—	$	—	200,000	$	2.09	12,000	$	0.87
Outstanding at March 31	3,472,000	$	1.36		3,469,000	$	1.17
Options exercisable at March 31	1,306,635	$	1.05		828,219	$	0.58
Outstanding at September 30								3,059,994	$	2.40	3,897,000	$	1.41
Options exercisable at September 30								1,009,629	$	1.36	1,037,885	$	0.81
Weighted average fair value of options granted during the period	—	$	—		—	$	1.10	—	$	6.53	—	$	1.33
Stock-based compensation expense		$	175,239			$	121,875	—	$	572,775	—	$	473,139

Total stock-based compensation expense ~~was $175,239~~totaled $572,775 and ~~$121,875~~$473,139 for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~ 2019, respectively. Cash received from option exercises for the ~~three~~nine months ended ~~March~~September 30, 2020 and 2019 was ~~$85,500~~$95,880 and ~~zero,~~$58,900, respectively.

~~- 11 -~~

The weighted-average grant-date fair value of options granted during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~ 2019 was ~~zero~~$6.53 and ~~$1.2 million,~~$1.33, respectively. ~~There were 175,000~~The total intrinsic value of options exercised during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and ~~zero during the three months ended March 31, 2019.~~2019 was $296,226 and $30,022, respectively.

- 13 -

The following table presents information pertaining to options outstanding at ~~March 31,~~September 30, 2020:


Range of Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price		Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price

$0.38-$3.15	3,472,000	6.4 years	$	1.36	1,306,635	$	1.05
$0.50 – 9.76								3,059,994	7.5 years	$	2.40	1,009,629	$	1.36

As of ~~March 31,~~September 30, 2020, there was ~~$2.0 million~~$3,679,084 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 4448 months. The total fair value of shares vested as of ~~March 31,~~September 30, 2020 and ~~March 31,~~ 2019, was ~~$868,012~~$874,041 and ~~$293,373,~~$506,729, respectively.

Performance Based Stock Options

The per share weighted average fair value of stock options granted during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019 was zero ~~for both periods.~~and $1.16, respectively. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2019. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued.


	March 31,				September 30,
	2020		2019		2020		2019

Dividend yield		—		—		—		0.00%
Expected Volatility		—		—		—		58.90%
Weighted-average volatility		—		—		—		—
Expected dividends		—		—		—		—
Expected term (in years)		—		—		—		10 Years
Risk-free rate		—		—		—		2.07%

The following table summarizes the status of the Plan with respect to performance based stock options:


	Three months Ended March 31,							Nine Months Ended September 30,
	2020			2019				2020			2019
	Shares	Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price

Outstanding at January 1	1,000,000	$	1.70		—	$	—	1,000,000	$	1.70	—	$	—
Granted	—	$	—		—	$	—	—	$	—	1,000,000	$	1.70
Exercised	—	$	—		—	$	—	—	$	—	—	$	—
Forfeited	—	$	—		—	$	—	—	$	—	—	$	—
Outstanding at March 31	1,000,000	$	1.70		—	$	—
Options exercisable at March 31	—	$	—		—	$	—
Outstanding at September 30								1,000,000	$	1.70	1,000,000	$	1.70
Options exercisable at September 30								333,333	$	1.70	—	$	—
Weighted average fair value of options granted during the period	—	$	—		—	$	—	—	$	—	—	$	1.16
Stock-based compensation expense	—	$	125,727		—	$	—	—	$	438,365	—	$	167,636

Total performance stock-based compensation expense totaled ~~$125,727~~$438,365 and ~~zero~~$167,636 for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively.

~~- 12 -~~

The weighted-average grant-date fair value of options granted during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~ 2019, was zero ~~for both periods.~~and $1.16, respectively.

- 14 -

The following table presents information pertaining to performance based options outstanding at ~~March 31, 2020:~~September 30, 2020.


Range of Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price		Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price

$1.70	1,000,000	9.2 years	$	1.70	—	$	—	1,000,000	8.7 years	$	1.70	333,333	$	1.70

As of ~~March 31,~~September 30, 2020, there was ~~$743,471~~$430,833 of total unrecognized compensation cost related to non-vested performance share option based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 31 months. The total fair value of shares vested as of ~~March 31,~~September 30, 2020 and 2019 was $387,520 and zero, ~~for both periods.~~respectively.

NOTE 5 — DEBT OBLIGATIONS

On February 8, 2018, the Company issued a ~~Promissory Note~~promissory note (the “Original Note”) to KeyBank National Association (“KeyBank”) in the amount of $1.5 million as a variable rate revolving line of credit loan due on demand with an interest rate of LIBOR plus 2.25%, collateralized with a certificate of deposit in the amount of $1.5 million. On September 25, 2018, KeyBank released the certificate of deposit as collateral for the loan and the Company executed a Commercial Security Agreement as collateral for the loan. ~~The Company had $1.5 million and zero outstanding against the line of credit as of March 31, 2020 and 2019, respectively.~~

~~NOTE 6 LEASES~~

~~The components of lease expense were as follows:~~

Three Months Ended
March 31, 2020

Three Months Ended
March 31, 2019

Operating lease cost

$
37,922

$
35,829

Finance lease cost:

Amortization of right-of-use assets

$
1,856

$
1,060

Interest on lease liabilities

87

72

Total finance lease cost

$
1,943

$
1,132

~~Supplemental cash flow information related to leases was as follows:~~

Three Months Ended
March 31, 2020

Three Months Ended
March 31, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Finance cash flows from finance leases

$
1,848

$
1,028

Finance lease cost:

Amortization of right-of-use assets

$
1,856

$
1,060

Interest on lease liabilities

87

72

Total finance lease cost

$
1,943

$
1,132

~~- 13 -~~

~~Supplemental balance sheet information related to leases was as follows:~~

Three Months Ended
March 31, 2020

Three Months Ended
March 31, 2019

Operating Leases

Operating lease right-of-use assets

$
340,118

$
472,224

Operating lease current liabilities

$
138,520

$
131,845

Operating lease long term liabilities

201,598

340,379

Total operating lease liabilities

$
340,118

$
472,224

Finance Leases

Property and equipment, at cost

$
12,725

$
6,363

Accumulated depreciation

(6,693
)

(1,060
)
Property and equipment, net

$
6,032

$
5,303

Finance lease current liabilities

$
4,252

$
4,241

Finance lease long term liabilities

1,842

1,094

Total finance lease liabilities

$
6,094

$
5,335

Three Months Ended
March 31, 2020

Three Months Ended
March 31, 2019

Weighted Average Remaining Lease Term

Operating leases

2 Years

3 Years

Finance leases

1 Year

1 Year

Weighted Average Discount Rate

Operating leases

4.75%

4.75%

Finance leases

4.75%

4.75%

~~Maturities of lease liabilities are as follows:~~

Year Ending December 31,

Operating Leases

Finance Leases

2020

$
113,764

$
3,598

2021

149,476

2,705

2022

97,256

—

Total lease payments

360,496

6,303

Less imputed interest

(20,378
)

(209
)
Total

$
340,118

$
6,094

~~NOTE 7 RELATED PARTY TRANSACTIONS~~

~~BUILDING LEASE~~

Mr. Pastreich, a former director, is a principal in the entity that owns the building leased by us for our corporate headquarters and manufacturing facility at 24 Carpenter Road, Chester, New York 10918. On February 28, 2019, we completed year twenty of a twenty year lease with monthly lease payments of $11,042. On November 14, 2017, we executed a lease extension, which calls for six month extensions beginning March 1, 2019 with the option to renew six times at a monthly lease amount of $12,088. The Company exercised three additional renewal options for September 1, 2019, through February 28, 2021.

The lease payments were $36,264 and $34,172 for the three months ended March 31, 2020, and 2019, respectively. The Company also paid property taxes in the amount of $13,421 and $12,427 for three months ended March 31, 2020, and 2019, respectively.

~~- 14 -~~

~~NOTE 8 SUBSEQUENT EVENTS~~

On April 14, 2020, the Company issued a promissory note to ~~the~~ KeyBank ~~National Association (the “Bank”)~~ in the aggregate principal amount of $3.5 million (the “Note”) as an extension of its line of credit, replacing its current line of credit agreement and ~~promissory note with the Bank dated February 8, 2018 (the “Original Note”).~~Original Note. The Company drew on the additional $2.0 million on April 23, 2020. The Original Note was in the form of a variable rate revolving line of credit with an interest rate of LIBOR plus 2.25%. The $3.5 million Note is in the form of a variable rate non-disclosable revolving line of credit with an interest rate of Prime Rate announced by the Bank minus 0.75%. Interest is due monthly, and all principal and unpaid interest is due on June 1, 2021. The $3.5 million Note may be prepaid at any time prior to maturity with no prepayment penalties. The $3.5 million Note contains events of default and other provisions customary for a loan of this type.

In connection with the Note, the Company entered into a Commercial Security Agreement with the Bank dated April 14, 2020 (the “Security Agreement”), pursuant to which the Company granted a security interest in substantially all assets of the Company to secure the obligations of the Company under the Note. The Security Agreement contains terms and conditions typical for the granting of security interests of this kind.

The Company had no amount outstanding against the line of credit as of September 30, 2020.

~~The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for seven months after~~ On May 13, 2020, the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The promissory note relating to the PPP Loan contains events of default and other provisions customary for a loan of this type. The Paycheck Protection Program provides that the PPP Loan may be partially or wholly forgiven ifCompany returned the funds are used for certain qualifying expenses as described in the CARES Act. The Company intends to use the PPP Loan amount for qualifying expenses, and will continue to assess whether to apply for forgiveness of the loan in accordance with the terms of the CARES Act.it received.

On April 27, 2020, the Company entered into a Progress Payment Loan and Security Agreement (“PPLSA”) and a Master Security Agreement (the “MSA”), each dated as of April 20, 2020, with Key Equipment Finance, a division of the Bank (“KEF”), to provide up to $2.5 million in financing for equipment purchases from third party vendors. The PPLSA allows the Company to make draws with KEF to make certain payments to the equipment suppliers prior to the commencement of periodic payments under a term loan. Each draw under the PPLSA will bear interest at a variable rate equal to the then-current Prime Rate and will be secured by the financed equipment under the MSA. At the end of each calendar quarter or year, the advances made under the PPLSA will be converted to term loans, subject to KEF’s approval of the equipment and certain other closing conditions being met. Once the draws under the PPLSA are converted into a term loan, each promissory note will bear interest at a fixed rate of 4.07% per annum, subject to adjustment based on KEF’s cost of funds, with principal and interest payable in 84 equal consecutive monthly installments. Each fixed rate installment promissory note may be prepaid, subject to a penalty if prepaid before the fifth anniversary of its issuance. As of September 30, 2020, the Company had no amount outstanding against the PPLSA.

~~On April 9, 2020,~~NOTE 6 — LEASES

We have finance and operating leases for our corporate office and certain office and computer equipment. Our leases have remaining lease terms of 1 to 3 years, some of which include options to extend the ~~United States Court of Appeals for~~leases annually and some with options to terminate the Federal Circuit affirmed an earlier decision by the United States District Court for the Eastern District of Texas (Case No. 2:15-CV-01167-JRG-RSP) that granted KORU Medical’s motion for summary judgement of non-infringement against EMED. On June 25, 2015, EMED filed a case in the United States District Court for the Eastern District of Texas claiming patent infringement of U.S. Patent 8,961,476 (“’476 Patent”) by the Company’s needle sets and seeking unspecified monetary damages (the “’ED Texas 476 Case”), and that on June 28, 2019 the United States District Judge for the ED Texas ’476 matter issued a Final Judgment of non-infringement in favor of RMS Medical. The District Judge adopted the decision of the Magistrate Judge that was issued on June 24, 2019, overruled EMED’s objections, awarded court costs to KORU Medical, and dismissed the case.leases within 1 year.

- 15 -

The components of lease expense were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019

Operating lease cost	$	37,921	$	37,922	$	113,764	$	111,672
Short-term lease cost		19,846		5,535		33,535		18,196
Total lease cost	$	57,767	$	43,457	$	147,299	$	129,868

Finance lease cost:
Amortization of right-of-use assets	$	791	$	1,061	$	4,502	$	3,182
Interest on lease liabilities		47		47		199		178
Total finance lease cost	$	838	$	1,108	$	4,701	$	3,360

Supplemental cash flow information related to leases was as follows:


	Nine Months Ended
	September 30,
	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	113,764	$	111,672
Financing cash flows from finance leases		4,502		3,122

Supplemental balance sheet information related to leases was as follows:


	September 30, 2020			December 31, 2019

Operating Leases
Operating lease right-of-use assets	$	271,679		$	373,734

Operating lease current liabilities		140,450			136,888
Operating lease long term liabilities		131,229			236,846
Total operating lease liabilities	$	271,679		$	373,734

Finance Leases
Property and equipment, at cost	$	12,725		$	12,725
Accumulated depreciation		(9,344	)		(4,837	)
Property and equipment, net	$	3,381		$	7,888

Finance lease current liabilities		3,026			5,296
Finance lease long term liabilities		414			2,646
Total finance lease liabilities	$	3,440		$	7,942


	September 30, 2020	December 31, 2019

Weighted Average Remaining Lease Term
Operating leases	1.6 Years	2.4 Years
Finance leases	1 Year	1.3 Years

Weighted Average Discount Rate
Operating leases	4.75%	4.75%
Finance leases	4.75%	4.75%

- 16 -

Maturities of lease liabilities are as follows:


Year Ending December 31,	Operating Leases			Finance Leases
2020 (excluding the nine months ended September 30, 2020)	$	37,922		$	832
2021		149,476			2,705
2022		97,256			—
2023		—			—
2024		—			—
2025		—			—
Thereafter		—			—
Total undiscounted lease payments		284,654			3,537
Less: imputed interest		(12,975	)		(97	)
Total lease liabilities	$	271,679		$	3,440

NOTE 7 — RELATED PARTY TRANSACTIONS

BUILDING LEASE

Mark Pastreich, a former director through April 2019, is a principal in the entity that owns the building leased by us for our corporate headquarters and manufacturing facility at 24 Carpenter Road, Chester, New York 10918. On February 28, 2019, we completed year twenty of a twenty-year lease with monthly lease payments of $11,042. On November 14, 2017, we executed a lease extension, which calls for six-month extensions beginning March 1, 2019 with the option to renew six times at a monthly lease amount of $12,088. The Company exercised four of the six additional renewal options for September 1, 2019 through August 31, 2021.

The lease payments were $36,264 for both three months ended September 30, 2020 and 2019, and $108,792 and $106,700 for the nine months ended September 30, 2020 and 2019, respectively. The Company also paid property taxes in the amount of $12,546 and $13,749 for three months ended September 30, 2020 and 2019, respectively and $39,205 and $39,165 for the nine months ended September 30, 2020 and 2019, respectively.

NOTE 8 — EQUITY

On June 18, 2020, the Company entered into a Purchase Agreement with Piper Sandler & Co. and Canaccord Genuity LLC, as representatives of the several underwriters named therein (the “Underwriters”), pursuant to which the Company agreed to issue and sell 3,125,000 shares of its common stock. Under the terms of the Purchase Agreement, the Company granted to the Underwriters an option, exercisable for a period of 30 days, to purchase up to an additional 468,750 shares of the Company’s common stock, which the Underwriters exercised in full on June 19, 2020. The Underwriters purchased the shares pursuant to the Purchase Agreement, including the shares subject to the option, at a price of $7.52 per share. Proceeds to the Company, net of discounts, commissions, fees and expenses, were $26.5 million.

NOTE 9 — SUBSEQUENT EVENT

On November 11, 2020, the Company entered into a Manufacturing and Supply Agreement with Command Medical Products, Inc. (“Command”), pursuant to which Command has agreed to manufacture and supply the Company’s subassemblies, needle sets and tubing products pursuant to the Company’s specifications and purchase orders. The first binding purchase order pursuant to the Manufacturing and Supply Agreement is expected to be made within the next ten days (the “Effective Date”).

The Manufacturing and Supply Agreement provides for a term of five years from the Effective Date. Either party may terminate the Manufacturing and Supply Agreement upon a material breach by the other Party that has not been cured within 90 days, upon the bankruptcy or insolvency of the other Party or as expressly set forth elsewhere in the Agreement. If the Company terminates the Manufacturing and Supply Agreement other than for those reasons within the first three years from the Effective Date, the Company is obligated to pay an early termination fee to Command.

The Manufacturing and Supply Agreement also includes customary provisions relating to, among other things, delivery, inspection procedures, warranties, quality management, business continuity plans, handling and transport, intellectual property, confidentiality and indemnification.

- 17 -

PART I –— ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains certain “forward-looking” statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to us that are based on the beliefs of the management, as well as assumptions made and information currently available.

Our actual results may vary materially from the forward-looking statements made in this report due to important factors such as uncertainties associated with COVID-19, future operating results, Food and Drug Administration regulations, introduction of competitive products, acceptance of and demand for new and existing products, ability to penetrate new markets, success in enforcing and obtaining patents, reimbursement related risks, government regulation of the home health care industry, success of the research and development effort, expanding the market of FREEDOM60^®demand in the SCIg market, availability of sufficient capital if or when needed, dependence on key personnel, and the impact of recent accounting ~~pronouncements and the outcome of litigation.~~pronouncements. When used in this report, the words “estimate,” “project,” “believe,” “may,” “will,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. Such statements reflect current views with respect to future events based on currently available information and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to release publicly any revision to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Throughout this report, the “Company,” “KORU Medical,~~” the “Company,~~” “we,” “us” ~~and~~or “our” ~~refer~~refers to Repro Med Systems, Inc.

OVERVIEW

~~On March 11, 2020,~~The Company designs, manufactures and markets proprietary portable and innovative medical devices primarily for the ~~World Health Organization announced that COVID-19, a respiratory illness, is a pandemic. COVID-19 has spread to many of~~ambulatory infusion market as governed by the ~~countries in which we, our customers~~United States Food and ~~our suppliers conduct business. Governments in affected regions have implemented,~~Drug Administration (the “FDA”) quality and ~~may continue to implement, safety precautions which include quarantines, travel restrictions, business closures, cancellations of public gatherings~~regulatory system and other measures as they deem necessary. Many organizations and individuals, including the Company and its employees are taking additional steps to avoid or reduce the likelihood of infection, including limiting travel and staying home from work. These measures are disrupting normal business operations both in and outside of affected areas and have had significant negative impacts on businesses and financial markets worldwide.international standards for quality system management.

The ~~Company~~following discussion and analysis for the three and nine months ended September 30, 2020 should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements for the year ended December 31, 2019 included in our 2019 Annual Report on Form 10-K.

KORU Medical continues to monitor its operations and government recommendations and has made modifications to its normal operations because of the COVID-19 outbreak, including requiring most of its non-production related team members to work ~~remotely.~~remotely or on a staggered work shift. The Company has ~~maintained~~continued to maintain a manufacturing operational capacity at its manufacturing facility located in Chester, New York, ~~at this time,~~ and has instituted heightened cleaning and sanitization standards and several health and safety protocols and procedures to safeguard its team members who do continue to report in person. ~~The Company’s operations remain active,~~Until the ultimate extent and duration of the pandemic is known, we cannot predict the ultimate 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 sales growth may be impacted due to fewer new prescriptions for individuals with Primary Immune Deficiency Disease (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”) as ~~we currently qualify as an “essential business” under New York state guidelines. There can be no assurance, however, that our manufacturing or other operations will remain active as in~~a result of the ~~past or at all, given potential changes in governmental policies, uncertainties over supply chain, possible employee illness or other COVID-19 related issues. With the COVID-19 outbreak, the need~~pandemic. Refer to ~~ensure vulnerable patients have access to home-based treatments is more apparent than ever. Home infusion therapy keeps high-risk patients with immune diseases and other conditions out~~“PART II – OTHER INFORMATION, ITEM 1A. RISK FACTORS” of ~~institutional settings and allows them to receive treatment at home.~~

~~In March 2020, in response to concerns about~~this Quarterly Report on Form 10-Q for further discussion of the potential impact of the COVID-19 ~~the Company elected to draw $1.5 million, the full amount available~~pandemic on ~~its line of credit.~~our business.

We ended the ~~first~~third quarter of 2020 with net sales of ~~$6.3~~$6.1 million, ~~an increase of 27.3% compared with~~down 8.1% versus the ~~same period last year, driven primarily~~prior year’s third quarter. Our net sales were negatively impacted principally by higher sales volume in needle sets, tubing and pump sales. The volume increase was driven by what we believe was a result of growth in diagnosis of primary immunodeficiency diseases (“PIDD”) and expansion into the neurology market with expanded Hizentra® indication for chronic inflammatory demyelinating polyneuropathy (“CIDP”), as well asreduced U.S. clinical trial ~~volume.~~

~~Our gross margin percentage,~~activity and higher allowances consisting of pricing and growth rebates related to certain customers and payment discounts and distribution fees at our largest distributor under new contract terms. The third quarter of 2019 included two unusually large orders, and the third quarter of 2020 included a significant order from our largest distributor placed early in exchange for a nominal discount, which ~~is gross profit stated as a percentage of~~may impact our net sales ~~declined to 60% down from 61% in the prior year mostly due to expense related to a discontinued product line and an increase in overtime, partially offset by price increases.~~

~~Net income was $0.4 million~~ for the ~~year, compared with a loss~~fourth quarter of $0.1 million for the previous year, driven by higher net sales and nearly the same operating expenses as last year. Selling, general and administrative and research and development expenses were higher than last year, but were offset by lower litigation fees.2020.

- 1618 -

As of March 31, 2020, the Company had $7.4 million cash on hand, including a draw of $1.5 million on the line of credit, and we expect to be able to continue to generate cash from future operating activities sufficient to fund our continued operations.

~~RECENT DEVELOPMENTS~~

On April 14, 2020, the Company issued a promissory note to the KeyBank National Association (the “Bank”) in the aggregate principal amount of $3.5 million as an extension of its line of credit, replacing its current line of credit agreement and promissory note with the Bank dated February 8, 2018 (the “Original Note”). In response to concerns about the potential impact of COVID-19, the Company elected to draw the additional $2.0 million now available under the line of credit, utilizing the full amount available of $3.5 million on its line of credit.

On April 20, 2020, the Company entered into a Loan Agreement with the Bank (the “PPP Loan Agreement”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), providing for a loan in the principal amount of $1.5 million (the “PPP Loan”). The PPP Loan was funded on April 27, 2020. The Company intends to use the PPP Loan amount for qualifying expenses, and will continue to assess whether to apply for forgiveness of the loan in accordance with the terms of the CARES Act.

RESULTS OF OPERATIONS

Three months ended ~~March 31,~~September 30, 2020 compared to ~~March 31,~~September 30, 2019

Net Sales

The following table summarizes our net sales for the three months ended ~~March 31,~~September 30, 2020 and 2019:


	Three Months Ended March 31,				Change from Prior Year				% of Sales		Three Months Ended September 30,				Change from Prior Year					% of Sales
	2020		2019		$			%	2020	2019	2020		2019		$			%		2020	2019
Sales
Domestic	$	5,340,866	$	3,883,565	$	1,457,301		37.5%	84.4%	78.1%	$	5,372,536	$	5,856,203	$	(483,667	)	(8.3%	)	88.4%	88.5%
International		989,143		1,090,713		(101,570	)	-9.3%	15.6%	21.9%		707,779		761,194		(53,415	)	(7.0%	)	11.6%	11.5%
Total	$	6,330,009	$	4,974,278	$	1,355,731		27.3%			$	6,080,315	$	6,617,397	$	(537,082	)	(8.1%	)

Total net sales ~~increased $1.4~~decreased $0.5 million or ~~27.3%~~8.1% to $6.1 million for the three months ended ~~March 31,~~September 30, 2020 compared with the same period last ~~year, driven~~year. Net sales decreased primarily by higher sales volume in needle sets, tubing and pump sales. The volume increase was driven by what we believe was a result of growth in diagnosis of primary immunodeficiency diseases (“PIDD”) and expansion into the neurology market with expanded Hizentra® indication for chronic inflammatory demyelinating polyneuropathy (“CIDP”), as well asdue to reduced U.S. clinical trial ~~volume.~~activity ($0.4 million). Higher allowances consisting of pricing and growth rebates related to certain customers and payment discounts and distribution fees at our largest distributor under new contract terms and lower international sales also contributed to lower net sales in the three months ended September 30, 2020. There were two unusually large orders in the third quarter of 2019, one domestic from our largest distributor and one international. Sales in the third quarter of 2020 included a $1.0 million order from our largest distributor placed early in exchange for a nominal discount, which may impact our net sales for the fourth quarter of 2020.

Gross Profit

Our gross profit for the three months ended ~~March 31,~~September 30, 2020 and 2019 is as follows:


	Three Months Ended March 31,				Change from Prior Year			Three Months Ended September 30,				Change from Prior Year
	2020		2019		$		%	2020		2019		$			%
Gross Profit	$	3,788,210	$	3,047,954	$	740,256	24.3%	$	3,940,723	$	4,382,908	$	(442,185	)	(10.1%	)
Stated as a Percentage of Net Sales		59.9%		61.3%					64.8%		66.2%

Gross profit ~~increased $0.7~~decreased $0.4 million or ~~24.3%~~10.1% in the three months ended ~~March 31,~~September 30, 2020, compared to the same period in ~~2019. This increase in the quarter was mostly~~2019, driven by ~~the increase in~~lower net sales ~~of $1.4 million. Gross margin declined compared with last year mostly due to expense for an obsolescence reserve resulting from a discontinued product line and an increase in overtime,~~as described above, partially offset by ~~price increases.~~ favorable production variances.

Selling, general and administrative, Litigation and Research and development

Our selling, general and administrative expenses, litigation and research and development costs for the three months ended ~~March 31,~~September 30, 2020 and 2019 are as follows:

~~- 17 -~~


	Three Months Ended March 31				Change from Prior Year				Three Months Ended September 30,				Change from Prior Year
	2020		2019		$			%	2020		2019		$			%
Selling, general and administrative	$	2,762,980	$	2,484,868	$	278,112		11.2%	$	3,075,169	$	2,441,381	$	633,788		26.0%
Litigation		99,158		492,515		(393,357	)	-79.9%		675		864,009		(863,334	)	(99.9%	)
Research and development		256,025		101,959		154,066		151.1%		390,416		170,260		220,156		129.3%
	$	3,118,163	$	3,079,342	$	38,821		1.3%	$	3,466,260	$	3,475,650	$	(9,390	)	(0.3%	)
Stated as a Percentage of Net Sales		49.3%		61.9%						57.0%		52.5%

Selling, general and administrative expenses increased ~~$0.3~~$0.6 million, or ~~11.2%~~26.0%, during the three months ended ~~March 31,~~September 30, 2020 compared to the same period last year, mostly due to higher consulting fees of $0.2 million related to marketing, regulatory and strategic initiatives. Also contributing to the increase were higher distribution related fees incurred with our largest distributor, higher director fees and insurance premiums related to our directors and officers insurance policy, and higher salary, ~~and~~ related benefits and recruiting fees ~~all~~of $0.4 million resulting from new hires in ~~aggregate~~the 2020 period. Higher consulting fees related to marketing and regulatory initiatives of $0.1 million also added to the increase, as well as higher directors and officer’s insurance premiums and other miscellaneous expenses totaling ~~$0.3~~$0.2 million. Offsetting these increases were lower ~~legal fees~~trade show and travel expenses of $0.1 million ~~compared to last year when we filed~~as a ~~registration statement in the first quarter and lower trade show expense in the amount~~result of ~~$0.1 million due to timing compared to last year.~~COVID-19 related travel restrictions.

Litigation fees ~~declined $0.4~~decreased $0.9 million during the three months ended September 30, 2020 compared to the same period last year primarily due to the negotiation of and entry into a ~~decrease~~litigation settlement agreement with EMED in ~~activity in the courts related to the litigation with our competitor. Refer to Note 3 Legal Proceedings in the Notes to the Financial Statements.~~May 2020.

- 19 -

Research and development expenses increased $0.2 million during the three months ended ~~March 31,~~September 30, 2020 compared with the same period last year mostly due to higher consulting services and additional testing related to development initiatives.

Depreciation and amortization

Depreciation and amortization expense increased by 39.7% to $115,637 in the three months ended September 30, 2020 compared with $82,774 in the three months ended September 30, 2019. We continue to invest in capital assets, mostly related to manufacturing and computer equipment.

Net Income


	Three Months Ended September 30,				Change from Prior Year
	2020		2019		$			%
Net Income	$	249,175	$	651,813	$	(402,638	)	(61.8%	)
Stated as a Percentage of Net Sales		4.1%		9.9%

Our net income for the three months ended September 30, 2020 was $0.2 million, compared to net income of $0.7 million for the three months ended September 30, 2019, primarily due to lower net sales of $0.5 million with total operating expenses remaining flat for the same periods.

Nine months ended September 30, 2020 compared to September 30, 2019

Net Sales

The following table summarizes our net sales for the nine months ended September 30, 2020 and 2019:


	Nine Months Ended September 30,				Change from Prior Year			% of Sales
	2020		2019		$		%	2020	2019
Sales
Domestic	$	17,459,212	$	14,308,994	$	3,150,218	22.0%	86.8%	84.5%
International		2,660,016		2,631,493		28,523	1.1%	13.2%	15.5%
Total	$	20,119,228	$	16,940,487	$	3,178,741	18.8%

Total net sales increased $3.2 million or 18.8% for the nine months ended September 30, 2020 as compared to the prior year period. The increase was due principally to an increase in product sales volume, as well as higher U.S. clinical trial activity ($1.0 million). We believe the increase in product sales volume reflects an increase in continued growth in diagnosis of PIDD and CIDP. Also contributing to the increase in product sales volume was a $1.0 million order from our largest distributor placed early in exchange for a nominal discount, which may impact our net sales for the fourth quarter of 2020. Partially offsetting net sales were higher allowances consisting of pricing and growth rebates related to certain customers and payment discounts at our largest distributor under new contract terms.

Gross Profit

Our gross profit for the nine months ended September 30, 2020 and 2019 is as follows:


	Nine Months Ended September 30,				Change from Prior Year
	2020		2019		$		%
Gross Profit	$	12,638,813	$	10,906,526	$	1,732,287	15.9%
Stated as a Percentage of Net Sales		62.8%		64.4%

Gross profit increased $1.7 million or 15.9% in the nine months ended September 30, 2020, compared to the same period last year, reflecting net sales growth described above as well as favorable production variances in the third quarter of 2020. Gross profit for the nine months was negatively impacted by overtime costs related to COVID-19 absenteeism and an obsolescence reserve resulting from a discontinued product line, partially offset by favorable production variances in the third quarter of 2020.

- 20 -

Selling, general and administrative, Litigation and Research and development

Our selling, general and administrative expenses, litigation and research and development costs for the nine months ended September 30, 2020 and 2019 are as follows:


	Nine Months Ended September 30,				Change from Prior Year
	2020		2019		$			%
Selling, general and administrative	$	9,039,980	$	6,976,684	$	2,063,296		29.6%
Litigation		2,446,747		2,481,471		(34,724	)	(1.4%	)
Research and development		944,637		450,454		494,183		109.7%
	$	12,431,364	$	9,908,609	$	2,522,755		25.5%
Stated as a Percentage of Net Sales		61.8%		58.5%

Selling, general and administrative expenses increased $2.1 million, or 29.6%, during the nine months ended September 30, 2020 compared to the same period last year, mostly due to higher salary and related benefits, severance, bonus and recruiting fees in aggregate totaling $1.4 million. Also contributing to the increase were consulting fees of $0.5 million related to marketing, regulatory and strategic initiatives, as well as increased director fees and higher insurance premiums related to our directors and officers’ insurance policy in aggregate totaling $0.3 million, and miscellaneous expenses of $0.3 million. Offsetting the increase were lower trade show and travel expenses of $0.4 million as a result of COVID-19 related travel restrictions.

Litigation fees decreased $34,724 compared to the same period last year due primarily to the negotiation of and entry into a litigation settlement agreement reached with EMED in May 2020 resulting in a non-cash expense of $2.2 million.

Research and development expenses increased $0.5 million during the nine months ended September 30, 2020 compared with the same period last year mostly due to increased salary and related benefits due to higher headcount and additional testing as we continue ~~to increase~~ our development initiatives.

Depreciation and amortization

Depreciation and amortization expense increased by ~~4.3 %~~17.9% to ~~$87,224~~$297,801 in the ~~three~~nine months ended ~~March 31,~~September 30, 2020 compared with ~~$83,651~~$252,594 in the ~~three~~nine months ended ~~March 31,~~September 30, 2019. We continued to invest in capital assets, mostly related to manufacturing and computer ~~equipment, and in patent applications and their maintenance.~~equipment.

Net (Loss)/Income


	Three Months Ended March 31,					Change from Prior Year			Nine Months Ended September 30,					Change from Prior Year
	2020		2019			$		%	2020			2019		$			%
Net Income/(Loss)	$	449,428	$	(85,390	)	$	534,818	626.3%
Net (Loss)/Income									$	(377,435	)	$	644,606	$	(1,022,041	)	(158.6%	)
Stated as a Percentage of Net Sales		7.1%		-1.7%						(1.9%	)		3.8%

Our net ~~income~~loss for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was $0.4 million compared to ~~a loss~~net income of ~~$0.1~~$0.6 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2019, driven by the EMED settlement charge and higher selling, general and administrative expenses, partially offset by higher sales ~~and gross profit, with nearly the same total operating expenses as last year~~ as described above.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity is our cash on hand of ~~$7.4~~$32.4 million as of ~~March 31,~~September 30, 2020, which includes ~~a $1.5 million draw against our line of credit.~~the net proceeds from the recent capital raise totaling $26.5 million. In ~~March 2020, in~~ response to concerns about the potential impact of COVID-19, the Company elected to draw ~~$1.5~~$3.5 million during the three months ended June 30, 2020, the full amount available on its line of ~~credit.~~credit, and paid it back during the three months ended September 30, 2020. 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 professional fees.~~expenses.

- 21 -

Cash Flows

The ~~Company’s operations remain active,~~following table summarizes our cash flows:


	Nine Months Ended September 30, 2020			Nine Months Ended September 30, 2019
Net cash provided by/(used in) operating activities	$	968,437		$	(502,014	)
Net cash (used in)/provided by investing activities	$	(1,007,539	)	$	1,389,281
Net cash provided by financing activities	$	26,601,984		$	502,958

Operating Activities

Net cash provided by operating activities of $1.0 million for the nine months ended September 30, 2020 was mostly attributable to non-cash charges for stock-based compensation and litigation settlement expense of $2.5 million, an increase in accounts payable, accrued expenses and accrued payroll of $2.8 million, driven by the litigation settlement with EMED, the capital raise and customer rebates. Further adding to the increase was an increase in depreciation and amortization of $0.3 million and an increase in the accrued tax liability of $0.2 million, resulting from book to tax differences related to stock option expense. Offsetting these were primarily working capital changes which include an increase in inventory of $3.2 million as we ~~currently qualify as~~built inventory to keep pace with sales growth and to insure timely order fulfillment, an ~~“essential business” under New York state government guidelines. With the COVID19 outbreak, the need~~increase in accounts receivable of $0.5 million due to ~~ensure vulnerable patients have access to home-based treatments is more apparent than ever. Home infusion therapy keeps high-risk patients with immune diseases~~timing of collections, and an increase in prepaid expenses and other ~~conditions out~~assets of ~~institutional settings~~$0.5 million relating to increased insurance premiums.

Net cash used in operating activities of $0.5 million for the nine months ended September 30, 2019 was mostly attributable to increased accounts receivable of $2.1 million as one of our major customer’s payment terms changed on January 1, 2019 from net 30 to net 60 days, increased inventory of $0.6 million as we build stock to keep pace with sales growth, as well as severance payments and ~~allows them~~payments for insurance renewals. Partially offsetting these were our non-cash charges for stock based compensation of $0.9 million and depreciation and amortization of long lived tangible and intangible asset of $0.3 million, as well as increases in accounts payable of $0.4 million primarily for major supplier invoices and accrued expenses of $0.5 million primarily due to ~~receive treatment at home.~~legal fees and bonus accruals.

Investing Activities

Net cash used in investing activities of $1.0 million for the nine months ended September 30, 2020 was primarily for capital expenditures for research and development and strategic initiatives. Our net cash provided by investing activities of $1.4 million for the nine months ended September 30, 2019 was mostly the result of the maturation of a certificate of deposit for $1.5 million and the sale of the house the Company owned for $0.2 million, offset by capital expenditures of $0.2 million, and patent applications and maintenance of existing applications of $0.2 million.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2020 of $26.6 million is from the $26.5 million capital raise, net of expenses and $0.1 million from options exercised. The $0.5 million provided by financing activities for the nine months ended September 30, 2019 is a result of warrants and options exercised during the period.

See “NOTE 5 — DEBT OBLIGATIONS” for further detail regarding the promissory note and loan agreement, and “NOTE 8 — EQUITY” regarding the equity offering.

We believe that as of ~~March 31,~~September 30, 2020, cash on hand and cash expected to be generated from future operating activities will be sufficient to fund our operations, including further research and development and capital expenditures, for the next 12 ~~months.~~months, as well as accelerate execution of our strategic initiatives. We believe KORU Medical’s home infusion products continue to find a solid following in the subcutaneous immunoglobulin (“SCIg”) market, as well as into new markets like neurology where Hizentra® received an expanded indication for CIDP.

~~- 18 -~~

We continue to be in litigation with a competitor, EMED Technologies Corp. (“EMED”) and have incurred a significant amount of legal fees in connection with that process. Although the Company believes it has meritorious claims and defenses in the actions and proceedings, their outcomes cannot be predicted with any certainty. If any of these actions against the Company are successful, they could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.

~~Cash Flows~~

~~The following table summarizes our cash flows:~~

Three Months Ended
March 31, 2020

Three Months Ended
March 31, 2019

Net cash provided by/(used in) operating activities

$
153,236

$
(1,045,233
)
Net cash used in by investing activities

$
(180,138
)
$
(96,833
)
Net cash provided by/(used in) financing activities

$
1,583,652

$
(3,848
)

~~Operating Activities~~

Net cash provided by operating activities of $0.2 million for the three months ended March 31, 2020 was mostly attributable to net income of $0.4 million, non-cash charges for stock-based compensation of $0.4 million, an increase in accounts payable of $0.5 million and an increase in tax liability of $0.2 million. Offsetting these were an increase in inventory of $0.7 million as we built inventory to keep pace with sales growth, and a decrease in accrued expenses of $0.4 million mostly related to cash payments for bonuses accrued for at December 31, 2019, net of current year accrual for bonuses, offset by higher rebates. Further offsetting the cash provided by operating activities was an increase in prepaid expenses of $0.2 million, as well as higher accounts receivable of $0.2 million.

Net cash used in operating activities of $1.0 million for the three months ended March 31, 2019 was mostly attributable to increased accounts receivable of $1.2 million as one of our major customer’s payment terms changed on January 1, 2019 from net 30 to net 60 days and increased inventory of $0.4 million as we look to build stock to keep pace with sales growth. Partially offsetting these were an increase in accounts payable of $0.5 million and non-cash charges for stock-based compensation of $0.3 million.

~~Investing Activities~~

Net cash used in investing activities of $0.2 million for the three months ending March 31, 2020 was for capital expenditures for research and development and strategic initiatives as well as for patent and trademark applications. Net cash of $0.1 million used in investing activities for the three months ended March 31, 2019 was for capital expenditures for computer equipment and leasehold improvements, as well as continued investment in patents.

~~Financing Activities~~

The $1.6 million provided by financing activities for the three months ended March 31, 2020 is from the $1.5 million drawn down on the line of credit and $0.1 million from options exercised. The $3,848 used in financing activities for the three months ended March 31, 2019 is related to payments for cancelled shares and leased office equipment.

~~RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS~~

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13—Financial Instruments – Credit Losses (Topic 326); Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

~~- 19 -~~

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing several exceptions including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.

NON-GAAP FINANCIAL MEASURES

Management of the Company believes that investors’ understanding of the Company’s performance is enhanced by disclosing non-GAAP financial measures as a reasonable basis for comparison of the Company’s ongoing results of operations. These non-GAAP measures should not be considered a substitute for GAAP-basis measures and results. Our non-GAAP measures may not be comparable to non-GAAP measures of other companies. The table below provides a disclosure of these non-GAAP financial measures to the most closely analogous measure determined in accordance with GAAP.

- 22 -

Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material effect on our reported results and, therefore, should not be relied upon as the sole financial measures to evaluate our financial results. The non-GAAP financial measures are meant to supplement, and to be viewed in conjunction with, GAAP financial results.

We disclose and discuss Adjusted EBITDA as a non-GAAP financial measure in our public releases, including quarterly earnings releases, and other filings with the Securities and Exchange Commission. We define Adjusted EBITDA as earnings (net ~~income)~~income/(loss)) before interest, income ~~taxes,~~tax expense, depreciation and amortization, discontinued product expense, reorganization charges, ~~and~~ litigation expenses including stock-based settlement expense, manufacturing initiative and stock option expenses. Prior to January 1, 2020, discontinued product expense and manufacturing initiative ~~expense was~~expenses were not included in our definition of Adjusted EBITDA. We believe that Adjusted EBITDA is used by investors and other users of our financial statements as a supplemental financial measure that, when viewed with our GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. We also believe the disclosure of Adjusted EBITDA helps investors meaningfully evaluate and compare our cash flow generating capacity from quarter to quarter and year to year. Adjusted EBITDA is used by management as a supplemental internal measure for planning and forecasting overall expectations and for evaluating actual results against such expectations. Because management uses Adjusted EBITDA for such purposes, the Company uses Adjusted EBITDA as a significant criterion for determining the amount of annual cash incentive compensation paid to our executive officers and employees. We have historically found that Adjusted EBITDA is superior to other metrics for our company-wide cash incentive program, as it is more easily explained and understood by our typical employee.

A reconciliation of our non-GAAP measures is below:


	Three Months Ended						Three Months Ended						Nine Months Ended
Reconciliation of GAAP Net Income/(Loss)	March 31,						September 30,						September 30,
to Non-GAAP Adjusted EBITDA:	2020			2019			2020			2019			2020			2019
GAAP Net Income/(Loss)	$	449,428		$	(85,390	)	$	249,175		$	651,813		$	(377,435	)	$	644,606
Tax Expense/(Benefit)		141,928			(22,099	)
Depreciation/Amortization		87,224			83,651
Income Tax Expense								143,353			186,681			316,200			189,265
Depreciation and Amortization								115,637			82,774			297,801			252,594
Interest Income, Net		(19,030	)		(17,480	)		(9,662	)		(23,368	)		(23,690	)		(59,091	)
Reorganization Charges		—			354,926			—			—			—			354,926
Discontinued Product Expense		109,558			—			(6,659	)		—			71,318			—
Litigation Expenses		99,158			492,515
Litigation								675			864,009			2,446,747			2,481,471
Manufacturing Initiative Expenses		109,803			—			59,045			120,386			194,804			120,386
Stock Compensation Expense		300,966			121,875
Stock Option Expense								346,323			324,135			1,011,140			640,775
Non-GAAP Adjusted EBITDA	$	1,279,035		$	927,998		$	897,887		$	2,206,430		$	3,936,885		$	4,624,932

~~- 20 -~~

Discontinued Product Expense. We have excluded the effect of expenses related to a discontinued product line in calculating our non-GAAP Adjusted EBITDA measure. We expected to ~~sunset~~retire our Res-Q-Vac product line intowards the end of 2020, but due to the failure of equipment ~~failure~~used to manufacture the product, the discontinuation and resulting expense was accelerated into the first quarter of 2020 which we would not otherwise incur in periods presented as part of our continuing operations. Subsequently, in the second and third quarter of 2020, we sold off a portion of the discontinued inventory previously reserved. We do not expect to incur any significant related expenses in the future.

Reorganization Charges. We have excluded the effect of ~~Reorganization Charges~~reorganization charges in calculating our non-GAAP Adjusted EBITDA measure. We incurred significant expenses in connection with the termination and replacement of C-suite executives and senior management which we would not otherwise incur in periods presented as part of our continuing operations. Reorganization charges include costs related to the replacement of C-suite executives including a transition bonus and recruiting fees, prior to March 31, 2019.

~~Litigation Expenses.~~Litigation. We have excluded litigation expenses in calculating our non-GAAP Adjusted EBITDA measure. Litigation expenses include stock-based litigation settlement expense of $2.2 million related to the settlement agreement entered into with EMED on May 20, 2020. We continue to evaluate our business performance excluding litigation ~~fees, which~~fees; however, we expect ~~will continue in future periods.~~these expenses related to the EMED litigation to discontinue soon because of the settlement.

Manufacturing Initiative Expenses. We have excluded the effect of expenses related to the implementation of those portions of our strategic plan related to creating manufacturing efficiencies, in calculating our non-GAAP Adjusted EBITDA measure. We incurred expenses in connection with executing on these initiatives which we would not otherwise incur in periods presented as part of our continuing operations. We expect to incur related expenses for the next twelve to eighteen months as we continue to execute on our strategic plan.

- 23 -

Stock Option Expense. We have excluded the effect of stock option expenses in calculating our non-GAAP Adjusted EBITDA measure. Although stock option compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock option compensation expenses. We record non-cash compensation expense related to grants of options and depending upon the size, timing and the terms of the grants, the non-cash compensation expense may vary significantly but will recur in future periods.

~~PART I –~~ ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

Refer to “NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the accompanying financial statements, which is incorporated herein by reference.

ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

Refer to “NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the accompanying financial statements, which is incorporated herein by reference.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not ~~Applicable.~~applicable.

~~PART I –~~ ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as such is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluations, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the ~~quarter~~three months ended ~~March 31,~~September 30, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

On November 11, 2020, Repro Med Systems, Inc. d/b/a KORU Medical Systems (the “Company”) entered into a Manufacturing and Supply Agreement with Command Medical Products, Inc. (“Command”), pursuant to which Command has agreed to manufacture and supply the Company’s subassemblies, needle sets and tubing products pursuant to the Company’s specifications and purchase orders. The first binding purchase order pursuant to the Manufacturing and Supply Agreement is expected to be made within the next ten days (the “Effective Date”).

The foregoing description of the Manufacturing and Supply Agreement is not complete and is qualified in its entirety by reference to the full text of the Manufacturing and Supply Agreement, a copy of which is attached as an exhibit to this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2020.

- 24 -

ITEM 1. LEGAL PROCEEDINGS

Litigation

~~- 21 -~~

~~- 22 -~~

ITEM 1A. RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, including those described in ~~Part I, Item 1A, “Risk Factors”~~“PART 1, ITEM 1A. RISK FACTORS” in our Annual Report on Form 10-K for the year ended December 31, 2019, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. The following are material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2019:

~~- 23 -~~

~~Uncertainty Relating~~Our business has been and could continue to be adversely affected by the COVID-19 ~~Pandemic~~pandemic.

The COVID-19 pandemic has and will continue affecting economies and businesses around the world. We are closely monitoring the impact of COVID-19 on all aspects of our business, including how it may impact our employees ~~patients, communities~~ and business operations. While we did not incur significant manufacturing disruptions during the quarter ended ~~March 31,~~September 30, 2020 from the COVID-19 pandemic, wecustomer purchasing patterns and clinical trial activity have been less predictable as a result of the pandemic. We may experience disruptions that could severely impact our results of operations and financial condition. We are unable to predict the impact that COVID-19 will have on our future operating results and financial condition due to numerous uncertainties. These uncertainties include the geographic spread of the pandemic, the severity of the virus, the impact of the virus directly on our employees or those of our suppliers, the duration of the outbreak, governmental actions, travel restrictions and social distancing, business closures or business disruptions (including those impacting our supply chain), delays in clinical trials, the effectiveness of actions taken in the United States and other countries to contain and treat the disease, the availability of plasma and drugs that are administered by our products, orthe number of new prescriptions for PIDD and CIDP, purchasing patterns of customers in response to the pandemic, changes to our operations, or whether the United States and additional countries are required to move to complete lock-down status, among others. Our sales representatives are unable to hold in-person meetings with customers and health care providers to discuss our products, which may further impact our sales. As local jurisdictions continue to put restrictions in place, our ability to continue to manufacture our products may also be limited. Such events may result in a period of business and manufacturing disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. The health of our workforce and our ability to meet staffing needs at our ~~facilities~~facility cannot be predicted and is vital to our operations. We will continue to monitor the COVID-19 situation closely and intend to follow health and safety guidelines as they evolve. Further, the ~~impacts~~spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential ~~worsening~~economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, it has resulted in significant disruption of global ~~economic conditions~~financial markets, which could reduce our ability to access capital, negatively affecting our liquidity. In addition, the recession resulting from the spread of COVID-19 could materially affect our business and the ~~continued disruptions to,~~value of our common stock. The ultimate long-term impact of COVID-19 is highly uncertain and ~~volatility in, the credit and financial markets, as well as other unanticipated consequences remain unknown.~~cannot be predicted with confidence.

~~PART II –~~ - 25 -

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Each non-employee director of the Company is eligible to receive of $50,000 annually (effective January 1, 2019) plus $10,000 for chairing a Board committee (effective February 20, 2019), all to be paid quarterly half in cash and half in common stock and pro-rated for partial service. The Chairman of the Board is eligible to receive an additional $50,000 annually (effective October 1, 2019), all to be paid in common stock. The Company issued an aggregate of ~~9,189~~6,681 and ~~25,782~~23,869 shares of common stock to its non-employee directors ~~during~~for the ~~three-month period~~three and nine months ended ~~March 31,~~September 30, 2020, ~~and March 31, 2019~~ respectively.

On January 7, 2020, Manuel Marques, the Company’s Chief Operating Officer, exercised options held by him for an aggregate 175,000 shares of common stock for an aggregate exercise price of $85,500.

On May 9, 2020, Karen Fisher, the Company’s Chief Financial Officer, exercised options held by her for an aggregate 535,000 shares of common stock through delivery of previously owned shares having an aggregate fair market value of $322,294.

On May 20, 2020, the Company entered into a Settlement Agreement with EMED Technologies Corporation (“EMED”) to settle all claims in connection with all pending litigation matters between them (the “Claims”). Pursuant to the Settlement Agreement, the Company issued to EMED (i) 95,238 restricted stock units, which vested on May 21, 2020 and 95,238 restricted stock units vesting on January 1, 2021, and (ii) an option to purchase up to 400,000 shares of the Company’s common stock at an exercise price of $11.21 per share prior to February 1, 2021, which can be settled in cash in lieu of common stock at the Company’s sole discretion, provided that the number of shares of common stock and/or amount of cash paid by the Company upon exercise will be capped at a value of $16.21 per share. The Settlement Agreement includes mutual releases and covenants not to sue for any claim arising before May 20, 2020 and the Company covenants not to challenge any EMED patents that were the subject of the Claims unless EMED asserts them in the future against Company products.

All of the securities issued by the Company as described in this Item were issued in reliance on the exemption from registration under Section 4(2) under the Securities Act of 1933, as amended.

~~PART II –~~ ITEM 6. EXHIBITS.


10.1	Manufacturing and Supply Agreement dated as of November 11, 2020 between Repro Med Systems, Inc. and Command Medical Products. Certain information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

31.1	Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act 2002

31.2	Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act 2002

32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 2002

32.2	Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 2002

101*	Interactive Data Files of Financial Statements and Notes.

* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

- 2426 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	REPRO MED SYSTEMS, INC.

~~May 6,~~November 12, 2020	/s/ Donald B. Pettigrew
	Donald B. Pettigrew, President and Chief Executive Officer (Principal Executive Officer)

~~May 6,~~November 12, 2020	/s/ Karen Fisher
	Karen Fisher, Chief Financial Officer and Treasurer (Principal Financial Officer)

- 2527 -


	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019

Operating lease cost	$	37,922	$	35,829

Finance lease cost:
Amortization of right-of-use assets	$	1,856	$	1,060
Interest on lease liabilities		87		72
Total finance lease cost	$	1,943	$	1,132