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,June 30, 2023

or

[_]  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

KORU MEDICAL SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

(845) 469-2042

(Registrant’s telephone number, including area code)

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

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 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.

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 4,August 9, 2023, 45,613,15045,639,081 shares of common stock, $0.01 par value per share, were outstanding, which excludes 3,420,502 shares of treasury stock.

KORU MEDICAL SYSTEMS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31,JUNE 30, 2023

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PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

KORU MEDICAL SYSTEMS, INC.

BALANCE SHEETS

(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

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KORU MEDICAL SYSTEMS, INC.

STATEMENTS OF OPERATIONS

(Unaudited)(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

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KORU MEDICAL SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

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KORU MEDICAL SYSTEMS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)(UNAUDITED)

Three Months Ended March 31, 2023

Three Months Ended March 31, 2022

The accompanying notes are an integral part of these financial statementsstatements.

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KORU MEDICAL SYSTEMS, INC.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

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

NATURE OF OPERATIONS

KORU MEDICAL SYSTEMS, INC. (the “Company,” “KORU Medical,” “we,” “us” or “our”) designs, manufactures and markets proprietary portable and innovative medical devices primarily for the subcutaneous drug delivery market as governed by the United States Food and Drug Administration (the “FDA”) quality and regulatory system and international regulations and standards for quality system management. The Company operates as one segment.

BASIS OF PRESENTATION

The accompanying financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2022 (“Annual Report”).  Certain informationIn accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the Company has omitted footnote disclosures normally includedthat would substantially duplicate the disclosures contained in annual financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been condensed or omitted from the accompanying financial statements.  The accompanying year-end balance sheet was derived from the audited financial statements included inof the Annual Report.Company. The accompanying interim financial statements are unaudited and 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 statementstatements 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 holdshas historically held cash balances in excess of $250,000 at its depository,primary commercial bank, which exceeds the FDIC insurance limits andlimits. To reduce the risk of uninsured deposits, the Company entered an insured cash sweep program with KeyBank during the second quarter of 2023 to automatically invest its uninsured bank cash balances over $250,000 into FDIC insured banks so there is therefore, uninsured.

INVENTORY

Inventoriesno more than $250,000 maintained at any one bank. Further, as of raw materials are stated atJune 30, 2023 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.Company had invested $10.4 million in a US Treasury bill that matures every 90 days.

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.

The Company believes that it has no uncertain tax positions requiring disclosure or adjustment.  Generally, tax years starting with 2019 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.

STOCK-BASED COMPENSATION

The Company maintains a stock option plan and an omnibus equity incentive 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.

The Company also maintains a non-employee director compensation plan. Shares of stock granted for director fees are recorded at the fair value of the shares at the grant date.

The Company issues restricted stock awards. Restricted stock awards are equity classified and measured at the fair market value of the underlying stock at the grant date. The fair value of restricted stock awards vesting at certain market capitalization thresholds were estimated on the date of grant using the Brownian Motion Monte Carlo lattice model. The fair value of restricted stock awards with time-based vesting were estimated on the date of grant at the current stock price. The fair value of restricted stock awards vesting at certain annual sales growth thresholds were estimated as of the date of Board acknowledgement of the achievement, at the current stock price. We recognize restricted stock expense using the straight-line attribution method over the requisite service period and account for forfeitures as they occur.

NET LOSS PER COMMON SHARE

Basic earningsnet loss per common share are computed onis calculated by dividing net loss by the weighted average number of common shares outstanding during each year.the period. Diluted earningsnet loss per common share include only an increase inis computed by dividing net loss by the weighted average number of common and common equivalent shares byoutstanding during the period. The Company’s potentially dilutive common shares issuable upon exerciseare those that result from diluted common stock options and unvested restricted stock awards. The calculation of employeediluted loss per share excluded stock options of 11,784 and consultant137,539, respectively, in weighted-average shares for each of the three months ended June 30, 2023 and 2022 and 14,001 and 166,441 respectively in weighted-average shares for each of the six months ended June 30, 2023 and 2022, respectively, as their effect was ant-diluted as a result of the net loss incurred for those periods.

The calculation of diluted loss per share excluded performance-based restricted stock options.  See “NOTE 4 — STOCK-BASED COMPENSATION”and RSUs of 904,496 and 950,000 respectively, in weighted-average shares for further detail.each of the three months ended June 30, 2023 and 2022 and 904,496 and 950,000 respectively in weighted-average shares for the six months ended June 30, 2023 and 2022, respectively, as their effect was anti-diluted as a result of the net loss incurred for those periods.

The following securities were not included in the computation of diluted shares outstanding for the three and six months ended June 30, 2023, and 2022 because the effect would be anti-dilutive:

Schedule of securities

Therefore, diluted weighted average number of shares outstanding and diluted net loss per share were the same as basic weighted average number of shares outstanding and net loss per share for the three and six months ended June 30, 2023 and 2022.

Schedule of net income per common share

USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

The preparation of financial statements in conformity with 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, deferred tax valuation allowances, inventory valuation, and customer rebate and incentive accruals. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the entire 2023 fiscal year.

REVENUE RECOGNITION

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

For Product Revenues,Revenue, we recognize revenues when shipment occurs, and at which point the customer obtains control and ownership of the goods.  Shipping costs generally are billed to customers and are included in revenues.Product Revenue.

The Company generally does not accept return of goods shipped unless it is a Company error.  The only credits provided to customers are for defective merchandise.  The Company warrants the syringe driver from defects in materials and workmanship under normal use and the warranty does not include a performance obligation.  The costs under the warranty are expensed as incurred.

Rebates are provided to distributors for the difference in selling price to distributor and pricing specified to select customers.  In addition, rebates are provided to customers for meeting growth targets.  Provisions for both distributor pricing and customer growth rebates are variable consideration and are recorded as a reduction of revenue in the same period the related sales are recorded or when it is probable the growth target will be achieved.

Our novel therapies revenues can fluctuate and may not be consistent from period to period. Engineering work performed on our product may be specialized and tailored to the specific needs of each independent clinical trial and not uniform in nature. The clinical trial size and scope of protocols may also range greatly from customer to customer, and there is no expectation of repeat customers on a consistent basis compared to our core business. We recognize NRE revenue under an input method, which recognizes revenue on the basis of our efforts or inputs (for example, resources consumed, labor hours expended, costs incurred, or time elapsed) to the satisfaction of a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation (ie(i.e. completion milestone). The input method that we use is based on costs incurred.

Contracts are often modified to account for changes in contract specifications and requirements. Contract modifications exist when the modification either creates new, or changes existing, enforceable rights and obligations. Generally, when contract modifications create new performance obligations, the modification is considered to be a separate contract and revenue is recognized prospectively. When contract modifications change existing performance obligations, the impact on the existing transaction price and measure of progress for the performance obligation to which it relates is generally recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. Contract assets primarily represent revenue earnings over time that are not yet billable based on the terms of the contracts. Contract liabilities (i.e., deferred revenue) consist of fees invoiced or paid by the Company’s customers for which the associated performance obligations have not been satisfied and revenue has not been recognized based on the Company’s revenue recognition criteria described above. As of June 30, 2023, the Company has recognized a contract asset of $282,118 which is included in other accounts receivable in the accompanying balance sheet.

The following table summarizes net revenues by geography for the three and six months ended March 31,June 30, 2023, and 2022:

Schedule of net sales by geography

LEASES

The FASB issued a 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.   The standard requires the recognition of ROU assets and lease liabilities by the Company for those leases classified as operating leases under current 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.  See “NOTE 6 — LEASES” for further detail.

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

 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.

In June 2016, the FASB issued 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 Company adopted the pronouncement above on January 1, 2022,2023, and there is no impact 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 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:

The carrying amounts of cash and cash equivalents, including investments in short-term U.S. Treasury bills, accounts receivable, prepaid expenses, accounts payable and accrued expenses 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 hierarchy during the three and six months ended March 31, 2023.June 30, 2023 and 2022.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.  An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the 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 respective fair value.  The Company did not record any impairment losses through March 31,June 30, 2023.

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NOTE 2 — PROPERTY AND EQUIPMENT

Property and equipment consists of the following at:

Schedule of property and equipment

Leasehold improvements decreaseand accumulated amortization each decreased of $0.5 million is due to the write-offclosure of the Company’s former Chester, location leasehold improvements resulting from theNew York office and manufacturing site closure.site.

Depreciation expense was $197,233196,865 and $94,085110,478 for the three months ended March 31,June 30, 2023 and 2022, respectively, and $394,099 and $204,562 for the six months ended June 30, 2023 and 2022, respectively.

NOTE 3 — COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

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

NOTE 4 — STOCK-BASED COMPENSATION

The Company has three equity incentive plans: the 2015 Stock Option Plan, as amended (the “2015 Plan”), the 2021 Omnibus Equity Incentive Plan (the “2021 Plan”), and the Non-Employee Director Compensation Plan. The Company has also issued restricted stock as employment inducement awards to its Chief Executive Officer.

As of March 31,June 30, 2023, there were options to purchase 2,600,000 shares of the Company’s common stock outstanding to certain executives, key employees and consultants under the 2015 Plan, of which 40,000zero were issued during the three months ended March 31,June 30, 2023 and 40,000 were issued during the six months ended June 30, 2023. Additional options may be issued under the 2015 Plan as outstanding options are forfeited, subject to a maximum 6,000,00059,250 available for issuance under the 2015 Plan.Plan as of June 30, 2023.

The 2021 Plan provides for the grant of up to 1,000,000 incentive stock options, nonqualified stock options, stock awards, restricted stock awards, restricted stock units and/or stock appreciation rights to employees, consultants and directors. During the three months ended March 31,June 30, 2023, there were no45,000 option awards issued under the 2021 Plan. As of March 31,June 30, 2023, there had been 156,758 shares of common stock issued as directors fees, 21,100 executive bonus shares and 475,000520,000 shares issued as executive and key employee compensation under the 2021 Plan in total. Additional options may be issued under the 2021 Plan as outstanding options are forfeited, subject to a maximum 302,142 available for issuance under the 2021 Plan as of June 30, 2023.

Each non-employee director of the Company (other than the Chairman of the Board) is eligible to receive $110,000annually, to be paid quarterly $12,500 in cash and $15,000 in common stock.  The Chairman of the Board is eligible to receive $140,000annually, to be paid quarterly $12,500 in cash and $22,500 in common stock. From May 18, 2021 to May 6, 2022, non-employee director compensation was paid pursuant to the 2021 Plan. Since May 6, 2022, non-employee director compensation has been paid pursuant to the Non-Employee Director Compensation Plan. All payments were and are pro-rated for partial service.

2015 STOCK OPTION PLAN, as amended

Time Based Stock Options

The per share weighted average fair value of stock options granted during the threesix months ended March 31,June 30, 2023 and March 31,June 30, 2022 was $2.832.78 and $2.452.03, 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 threesix months ended March 31,June 30, 2023 and March 31,June 30, 2022. 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. We have recognized tax benefits associated with stock-based compensation of $49,817125,504 and $49,406107,855 for the threesix months ended March 31,June 30, 2023 and 2022, respectively.

The following table summarizes the activities for our stock option plans for the six months ended June 30, 2023, and 2022.

Schedule of time based stock options

The following table summarizes the status of the 2015 Plan with respect to time based stock options:

Schedule of status of time based stock options

Total stock-based compensation expense was $475,9831,075,158 and $524,6701,052,405 for the threesix months ended March 31,June 30, 2023, and 2022, respectively. No cash was received from option exercises for the threesix months ended March 31,June 30, 2023, and 2022 .2022.

The weighted-average grant-date fair value of options granted during the threesix months ended March 31,June 30, 2023, and 2022 was $0.10.2 million and $0.31.6 million, respectively.  There were no options exercised during the threesix months ended March 31,2023June 30, 2023 and 75,000618,750 options exercised during the threesix months ended March 31, 2022, respectively.June 30, 2022.

The following table presents information pertaining to options outstanding at March 31,June 30, 2023:

Schedule of information pertaining to options outstanding

As of March 31,June 30, 2023, there was $3,936,2684,248,300 million 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 4546 months.  The total fair value of shares vested as of March 31,June 30, 2023, and March 31,June 30, 2022, was $3,511,8743,798,884 and $2,815,9432,149,858, respectively.

2021 STOCK OPTION PLAN, as amended

Time Based Stock Options

The per share weighted average fair valueAs of June 30, 2023, an aggregate of 361,392 shares remain for future stock options granted duringgrants under the three months ended March 31, 2023 and March 31, 2022 was zero and zero respectively.  The fair value of each award is estimated on the grant date using the Black-ScholesCompany’s stock option pricing model with the following weighted average assumptions used for grants in the three months ended March 31, 2023 and March 31, 2022. 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. We have recognized tax benefits associated with stock-based compensation of $12,406 and zero for the three months ended March 31, 2023 and 2022, respectively.

Schedule of time based stock options

The following table summarizes the status of the 2021 Plan with respect to time based stock options:

Schedule of status of time based stock options

Total stock-based compensation expense was $59,076 and zero for the three months ended March 31, 2023, and 2022, respectively. There were no options exercised during the three months ended March 31, 2023 and March 31, 2022.

The weighted-average grant-date fair value of options granted during the three months ended March 31, 2023, and 2022 was zero million and zero million, respectively.  There were zero options exercised during the three months ended March 31, 2023, and March 31, 2022.plans.

The following table presents information pertaining to options outstanding at March 31, 2023:

Schedule of information pertaining to options outstanding

As of March 31, 2023, there was $728,603 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2021 Plan.  That cost is expected to be recognized over a weighted-average period of 48 months.  The total fair value of shares vested as of March 31, 2023, and March 31, 2022, was zero and zero, respectively.

RESTRICTED STOCK AWARDS

The following table summarizes the activities for our restricted stock awards for the threesix months ended March 31,June 30, 2023, and 2022.

As of March 31,June 30, 2023, and 2022, there was $1,447,7901,477,730 and $2,129,3391,958,952 of unrecognized compensation cost related to unvested employee restricted shares.stock units. This amount is expected to be recognized over a weighted-average period of 21 months. We have recognized tax benefits associated with restricted stock award compensation of $35,78171,563 and $35,78171,563 for the threesix months ended March 31,June 30, 2023 and 2022, respectively.

NOTE 54 — DEBT OBLIGATIONS

On June 29, 2022, theThe Company entered intohad a Loan Modification Extension Agreement (the “Modification Agreement”) with Keybank National Association (“Lender”) to modify its$3,500,000 revolving line of credit with Lender in the amount of $3,500,000 (the “Loan”)Keybank National Association that was originally made available on April 14, 2020 and renewedexpired on June 24, 2021. Among other things, the Modification Agreement: (i) extends the maturity date of the Loan from June 1, 2022 to June 1, 2023; (ii) changes the interest rate applicable to the Loan from Prime – 1.50% to Prime + 0%; (iii) releases the Company from its obligations under a certain security agreement dated June 24, 2021 pursuant to which the Company had previously granted the Lender a first priority security interest in all equipment, inventory, accounts, instruments, chattel paper and general intangibles of the Company (the “Security Agreement”); and (iv) replaces the Security Agreement with a new pledge security agreement dated June 29, 2022 by and between the Company and Lender (the “Pledge Agreement”), which Pledge Agreement grants Lender a first priority security interest in certain of the Company’s bank accounts as collateral security for the Loan.1,2023. The Company had no amount outstandingdid not borrow against the line of credit as of March 31,during the six-month period ended June 30, 2023.

On August 5, 2022, the Company entered into a commercial insurance premium finance and security agreement with AON Premium Finance, LLC in the aggregate principal amount of $0.8 million bearing an annual percentage rate of 6.5%, to finance its insurance premiums. Monthly payments are due on the first of each month beginning August 1, 2022 through June 1, 2023. The balance of AON note was $433,295 and $218,403zero atas of December 31, 2022 and March 31,June 30, 2023, respectively.

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NOTE 65 — LEASES

We haveThe Company has an operating lease for ourits corporate office, and2 finance leases for certain office and computer equipment.  Our operating lease has remaining lease term of nine years and 4 months.9.2 years. Our finance leases, which were entered into in June 2022 and October 2022, respectively, have remaining lease terms of 4.23.9 and 4.54.3 years, respectively.

The components of lease expense were as follows:

Schedule of components of lease expense

Supplemental cash flow information related to leases was as follows:

Schedule of cash flow information related to leases

Supplemental balance sheet information related to leases was as follows:

SchdeuleSchedule of balance sheet information related to leases

Maturities of lease liabilities are as follows:

Schedule of maturities of lease liabilities

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NOTE 6 — INCOME TAXES

For interim income tax reporting, the Company estimates its annual effective tax rate and applies it to fiscal year-to-date pretax loss, excluding unusual or infrequently occurring discrete items. Tax jurisdictions with losses for which tax benefits cannot be realized are excluded. The Company reported an income tax benefit of $0.6 million and income tax benefit of $0.7 million for the three months ended June 30, 2023 and 2022, respectively. For the six months ended June, 30 2023 and 2022, the Company reported income tax benefit of $1.2 million and income tax benefit of $1.3 million, respectively.

Each reporting period, we evaluate the realizability of our net deferred tax assets and perform an assessment of both positive and negative evidence. Based on our evaluation of all available positive and negative evidence, we determined, as of June 30, 2023 and December 31, 2022, that it is more likely than not that our net U.S. deferred tax assets will be realized. Due to estimates and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record a valuation allowance in future reporting periods that could have a material effect on our results of operations.

Recurring items cause our effective tax rate to differ from the U.S. federal statutory rate of 21%, including U.S. federal R&D credits, U.S. state tax rates, and stock-based compensation.

Beginning in 2022, certain research and development costs are required to be capitalized and amortized over a five-year period under the Tax Cuts and Jobs Act enacted in December 2017. This change will impact the expected U.S. federal and state income tax expense and cash taxes to be paid for our fiscal 2023.

The Company files income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. Income tax returns for years prior to fiscal 2019 are no longer subject to examination by tax authorities.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

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

NOTE 8 — SUBSEQUENT EVENTS

On July 25, 2023, the Company entered into a commercial insurance premium finance and security agreement with AON Premium Finance, LLC in the aggregate principal amount of $0.6 million bearing an annual percentage rate of 9.5%, to finance its insurance premiums. Monthly payments are due on the first of each month beginning August 1, 2023 through June 1, 2024.

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

This Quarterly Report on Form 10-Q contains, and our officers and representatives may from time to time make, 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. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control.

Our actual results may vary materially from the forward-looking statements made in this report due to important factors such as uncertainties associated with global health crises, inflation, war and other geopolitical conflicts, customer ordering patterns, availability and costs of raw materials and labor and our ability to recover such costs, our ability to convert inventory to a source of cash, future operating results, growth of new patient starts and the SCIg market, our ability to partner with biopharmaceutical companies in our novel therapies business, Food and Drug Administration and foreign authority regulations and the outcome of regulatory audits, 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 our research and development effort, expanding the market of FREEDOM system demand in the SCIg market, availability of sufficient capital if or when needed, dependence on key personnel, and the impact of recent accounting pronouncements, as well as those risks and uncertainties described in Part II.— Item IA. “Risk Factors” in this report and from time to time in our past and future reports filed with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the year ended December 31, 2022 in addition to others. 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, which include, without limitation, statements regarding transition to our secondary manufacturing source, reduction of inventory, movereceipt of our manufacturing facility,ERC payroll tax credit, , and need for additional financing, and 2023 expenses and capital expenditures.financing.  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,” “we,” “us” or “our” refers to KORU Medical Systems, Inc.

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OVERVIEW

The Company develops, manufactures and markets proprietary portable and innovative medical devices primarily for the subcutaneous drug delivery market as governed by the United States Food and Drug Administration (the “FDA”) quality and regulatory system and international regulations and standards for quality system management.

Our revenues derive from three business sources: (i) domestic core (consisting of US and Canada), (ii) international core, and (iii) novel therapies.  Our domestic core and international core revenues consist of sales of our products for the delivery of subcutaneous drugs that are cleared by FDA clearedand other applicable global regulatory authorities (e.g. EU Competent Authorities) for use with the Freedom InfusionFREEDOM System, , with the primary use being for the delivery for immunoglobulin to treat Primary Immunodeficiency Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”). Novel therapies consist of product revenues from our infusion system (syringe drivers, tubing and needles) for feasibility/clinical trials (pre-clinical studies, Phase I, Phase II, Phase III) of biopharmaceutical companies in the drug development process as well as non-recurring engineering services revenues (“NRE”) received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and commercial use. Our novel therapies revenues can fluctuate and may not be consistent from period to period. Engineering work performed on our product may be specialized and tailored to the specific needs of each independent clinical trial and not uniform in nature. The clinical trial size and scope of protocols may also range greatly from customer to customer, and there is no expectation of repeat customers on a consistent basis compared to our core business.

In March 2023, the Company completed its transition of finished goods manufacturing of needle and tubing sets to Command Medical Products, a third-party contract manufacturing organization, which began in 2021. The transitionThis arrangement provides for dual source manufacturing capability and expected cost improvements.

The Company entered into a lease commencing March 1, 2022 for a new corporate headquarters and manufacturing facility located in Mahwah, NJ. During the quarter ended June 30, 2022, the Company completed the first phase of the move, the headquarters and office staff to the new location, and completed the move of manufacturing during the first quarter of 2023.

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The Company ended the 2023 firstsecond fiscal quarter with $7.4$6.9 million in net revenues, an 18.4%5.9% increase, compared with $6.2$6.5 million in the same period last year driven by growth in all three of our business sources.core business.

Gross profit for the three months ended March 31,June 30, 2023, was $4.1increased $0.5 million, an increase of 14.5%16.2% from the same period last year and, stated as a percentage of net revenues was 56.1%, a declinean increase from 58%51.1% in the prior year period.

Operating expenses for the three months ended March 31,June 30, 2023, were $7.2$7.1 million, up from $6.7$7.0 million for the same period last year, driven primarily by an increase of $0.4$0.3 million in research and development expense, and an increase of $0.1 million in depreciation expense, which was partiallymostly offset by a reduction of $0.07$0.2 million in selling, general and administrative expenses.

RESULTS OF OPERATIONS

Three months ended March 31,June 30, 2023, compared to March 31,June 30, 2022

Net Revenues

The following table summarizes our net revenues for the three months ended March 31,June 30, 2023, and 2022:

Total net revenues increased $1.1$0.4 million, or 18.4%5.9%, for the three months ended March 31,June 30, 2023, as compared with the same period last year with double-digit growth across all businesses.year. Domestic Core growth of 14.5%7.8% was primarily driven by increased growth in consumables and pumps, and consumables from a growing SCIg market, new account wins,accounts, and increased prefilled syringe adoptions, and increasesadoptions. The US growth was affected by a Q2 decline in average selling prices.US market prescriptions for subcutaneous immunoglobulin drugs. International Core growth of 22.6%17.4%, was driven by strength across several EUEuropean markets expanded distribution, and growing global Immunoglobulin drug volume availability. Novel Therapies net revenues grewdeclined by 61.9%28.0% in the firstsecond quarter of 2023 primarily related to services performed on anstrong NRE innovation development agreement for a pharmaceutical customer.

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Tablerevenues in the comparable quarter last year as well as the timing of Contents2023 pipeline wins.

Gross Profit

Our gross profit for the three months ended March 31,June 30, 2023 and 2022 is as follows:

Gross profit increased $0.5 million or 14.5%16.2% in the three months ended March 31,June 30, 2023, compared to the same period in 2022. The 2023 firstsecond quarter gross profit increase was driven by the increase in net revenues of $1.1$0.4 million as described above. Gross profit as a percentage of revenues decreasedincreased to 56.1% compared to 51.1% in the first quarter of 2023 compared to 58% from the firstsecond quarter of 2022.  The declineincrease in the gross profit as a percentage of revenues was primarily causeddriven by higher manufacturing costs associated with labor and materials partially offset by an increase in average selling prices.increased production efficiencies when compared to the prior year.

Selling, general and administrative and research and development

Our selling, general and administrative and research and development costs for the three months ended March 31,June 30, 2023 and 2022 are as follows:

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Selling, general and administrative expenses decreased $0.07$0.2 million, or 1%4.1%, during the three months ended March 31, 2023 compared to the same period last year, primarily due to a $0.1 million decrease in liability insurance, a $0.1 million decrease in stock compensation, and a $0.1 million decrease in sales commissions, partially offset by a $0.1 million increase in travel and entertainment expense and $0.1 million in building expense and tax.

Research and development expenses increased $0.4 million, or 36% during the three months ended March 31,June 30, 2023 compared with the same period last year, primarily due to a $0.3 million decrease in recruiting costs and $0.2 million in compensation and benefits $0.1related to the vacancy in the Chief Financial Officer role, partially offset by $0.3 million investments in stock compensationbusiness development and $0.1medical affairs.

Research and development expenses increased $0.3 million, or 22.5% during the three months ended June 30, 2023 compared with the same period last year, primarily due to increases in recruitingoutside consulting associated with new hires tothe support of our innovation efforts.

Depreciation and amortization

Depreciation and amortization expense increased by 95.07%69.1% to $213,117$212,919 in the three months ended March 31,June 30, 2023 compared with $109,252$125,882 in the three months ended March 31,June 30, 2022 resulting from prior year investments in support ofour Mahwah facility which includes our corporate office, in-house manufacturing, and manufacturing site relocation.research and development labs.

Net Loss

Our net loss decreased $0.1$0.4 million in the three months ended March 31,June 30, 2023 compared with the same period last year mostly driven by higheran increase in net revenues of $1.1$0.4 million and associated higher gross marginprofit of $0.5 million offsetting operating expenses of $0.4 million, and higheran increase in other income of $0.1$0.2 million due to higher interest and dividend income from our treasury bill investments.investments, which was partially offset by higher operating expenses of $0.2 million. A tax benefit of $0.6 million resulting from the loss was also recorded during the period.

Six months ended June 30, 2023, compared to June 30, 2022

Net Revenues

The following table summarizes our net revenues for the six months ended June 30, 2023, and 2022: